The Fed decides based on the data it sees. With UE low and stable and inflation still elevated, holding policy steady is the right choice. Tariff & ME conflict risks make the choice even clearer.
Looks like about half committee is with me already in the no cuts for '25 camp. Suspect the camp will expand as tariff-related inflation pressure flows through and the UE rate remains artificially depressed due to low labor supply.
Completely agree. I believe many are too rooted in recency bias and “r-star” estimates that are based on a different cohort of data (ie pre Covid). None of us know what neutral is and with the balanced risks, the best move is no move.
Getting an understanding of r* today is best done empirically rather than relying on various models. For instance at current rates the UE rate has been flat for almost a year and inflation relatively stable modestly above the Fed's target. That would suggest we are roughly at neutral when it comes to monetary policy.
Looks like about half committee is with me already in the no cuts for '25 camp. Suspect the camp will expand as tariff-related inflation pressure flows through and the UE rate remains artificially depressed due to low labor supply.
Completely agree. I believe many are too rooted in recency bias and “r-star” estimates that are based on a different cohort of data (ie pre Covid). None of us know what neutral is and with the balanced risks, the best move is no move.
Getting an understanding of r* today is best done empirically rather than relying on various models. For instance at current rates the UE rate has been flat for almost a year and inflation relatively stable modestly above the Fed's target. That would suggest we are roughly at neutral when it comes to monetary policy.
Well said