NEAM Insights

June Overview The Fed stayed the course in June, keeping the benchmark policy rate range at 4.25 - 4.50% while advocating a cautious approach as recent trade policy measures have yet to show their impact on economic activity and inflation. Per its statement, the Fed believes that uncertainty has “diminished but remains elevated,” the labor market is in “solid” shape, while inflation remains “somewhat elevated.” However, with the effect of newly initiated trade policies not yet widely appearing in prices, it sees its current policy stance as appropriate until it can gain a clearer vision, a message Fed Chair Powell reiterated later in the month in testimonies to the House and Senate. Accompanying the Fed’s statement was the release of its summary of economic projections. Relative to the last release in March, the projections showed nearer term growth expectations slowing, with the median estimate for GDP for this year and the next falling but remaining unchanged thereafter. Concurrently, estimates for unemployment, headline and core inflation rose slightly across the board. With these assumptions in mind, the median estimate for the Fed Funds rate remained level for this year (implying 50 bps of cuts), although the dot plot showed a slight shift closer to the current positioning than the previous meeting. The Fed finds itself in a difficult position, with diverging economic projections highlighting that the Fed’s dual mandate remains “in tension,” as inflation estimates increase while growth expectations decrease. For now, however, and until the data carves a path more definitively one way than the other, the Fed has decided to stay put. Read More

May Overview With “heightened uncertainty” still dominating consumer and business sentiment, the Fed unanimously voted to maintain its benchmark rate range at 4.25-4.50%. Arguing that the economy is “still in a solid position,” with unemployment at 4.2%, and inflation lower but still above its target, the Fed remains tethered to the position that upholding the status quo is the best position at this time until hard data encourages them to act otherwise. Read More

April Overview Fed minutes highlighted that the US labor market remains stable and that inflation, although lower, remains above the desired level. New policies, particularly regarding trade, are presenting a challenge, however, and the Fed remains tethered to its data dependency position, waiting for hard data to confirm weakening survey responses on the consumer and business fronts. The Fed sees pressure on inflation favoring the upside, and concurrently growth pressuring to the downside. With “uncertainty higher,” the Fed prefers a more cautious approach, allowing them to remain restrictive enough in the face of potential one-time or more persistent inflation, as well as being ready to let the line out should labor market and/or growth pressures intensify. In a speech at the Economic Club of Chicago mid-month, Powell once again mentioned the “significantly higher than anticipated” tariffs and the corresponding impact on uncertainty, with potential implications for higher transient or persistent inflation, and slower growth on the horizon. With survey data for inflation expectations rising, and domestic and global growth estimates being revised downward, the Fed sits at a crossroads, advocating its intent to act once the data warrants so. Read More

March Overview Against the backdrop of “unusually elevated” uncertainty, the Fed held its benchmark rate steady at its most recent meeting, stating that the economy remains “strong overall” while they continue to work towards achieving their dual goals. Aware that offsetting upward pressures on inflation, and downward pressures on growth are increasing, the committee opted to hold steady. Read More

February Overview The minutes from the most recent January FOMC meeting, in which rates were left on hold after having been reduced by 100 bps from their recent peak, confirmed that the Fed believes rates are “still restrictive,” just less so than before. Although still focusing on both objectives, the focus has shifted to bringing inflation further down as the labor market holds up. Indeed, the minutes shared that participants believe the labor market to be “roughly in balance” and “unlikely to be a source of inflationary pressure in the near future.” Read More

January Overview With three consecutive rate reductions in the rearview mirror, the Fed held its benchmark rate steady at its most recent meeting. Believing that the economy is holding up, it sees no need to “be in a hurry to adjust” its current stance, biding its time instead to watch developments on the labor and inflation front. Indeed, minutes from the December FOMC meeting showed that participants believed that the risks of achieving their dual mandate were “roughly in balance,” albeit with more upside risks to inflation. Read More

December Overview The Fed cut its benchmark rate by 25 basis points as expected, bringing its benchmark range to 4.25%-4.50%. The decision was not unanimous, with the Cleveland Fed’s president voting to stay put at the previous level, and Powell commenting that it was a “closer call.” Commenting again that “labor market conditions have generally eased,” and despite being closer to their goal, inflation remains “somewhat elevated,” the committee will, as has been the case, remain “cautious,” and rely on incoming data to determine the degree and timing of future “adjustments” to its range. Read More

November Overview The Fed’s 25 basis point November rate cut, which took the benchmark range to 4.50%-4.75%, did not come as a surprise. The market had begun to embrace a slower pace of rate reductions of late, with stronger data on balance presenting itself since the last Fed meeting. In the post-meeting press conference, in which Powell took time to assert the Fed’s independence post-election and stated the Fed would not “guess, speculate or assume” with respect to potential policies of the new administration, the Fed referred to easing labor market conditions and progress on the inflation front, and its intention to fine tune its policy to keep on target with its dual mandate. Read More

October Overview The Fed lowered its benchmark rate by 50 basis points in September, citing a more balanced labor market and declining rate of inflation as grounds to support its decision. Minutes from the meeting however showed that the decision to move by the above-mentioned amount was not entirely without hesitation, with some participants open to more gradual moves. Comments highlighted that the path may be more gradual going forward, particularly given a higher-than-expected payrolls number and inflation print in September, notwithstanding the noisy October print. Read More

September Overview The much-awaited, anticipated, and debated Fed decision took place over the month. After years of tightening the reigns, the Fed reduced its benchmark rate by 50 basis points as it began to “recalibrate” its policy positioning. With stubbornly high inflation subsiding and the labor market softening, the Fed leaned on the more aggressive side of the market’s expectations to preserve labor market resilience while continuing to bring inflation down to its target range. Read More