NEAM Insights

August Overview The minutes of the most recent Fed meeting highlighted that the timing of a rate cut is nearing. Indeed, a number of participants at the meeting felt that the progress to date on the inflation front, combined with the weakening labor market, could have justified a 25-basis point cut at the last meeting. Furthermore, the “vast majority” believed it would be appropriate to reduce their benchmark rate at the next meeting if the data tracked in line with its current path while Chairman Powell further cemented the Fed’s intentions to cut rates in his Jackson Hole remarks. Inflation has cooled, and the Fed is of the opinion that “the upside risks to inflation have diminished.” At the same time, the strong labor market fundamentals that have characterized the jobs market for some time now are fading. Read More

July Overview July ended with the Fed still on hold as expected, leaving the target range of its benchmark rate at 5.25-5.50%. In the Fed’s accompanying statement, it highlighted that the economy continues to hold up, even as the labor market slows, and higher levels of inflation subside. The committee remains aware of the risks of remaining too restrictive for too long, sharing that members are “attentive to the risks to both sides of its dual mandate” as the labor market begins to soften but higher than targeted levels of inflation remain. Appreciating that most participants see policy as restrictive and growth cooling, the statement, and the minutes from the last meeting released over the month, continue to share the same message, namely that when the data confirms that inflation is sustainably moving back to the Fed’s target, they’ll act. They remain encouraged by the progress made to date, however, and appear to be edging ever closer to action, as suggested by Powell in the post-meeting conference, but just need more time to be “more confident.” Read More

June Overview During the Fed’s most recent meeting, they shared that although inflation is tracking in the right direction, with “notable” progress to date, it still sits at a level with which the Fed is not comfortable. In their Summary of Economic Projections, inflation estimates increased for this year and next, while remaining unchanged at 2% for 2026 and beyond, highlighting their belief in the persistence of higher prices while ultimately meeting its target. With higher near-term expected inflation, median estimates now call for one rate cut this year (versus three in March), in line with the messaging that rates will stay higher for longer. Although considerable progress has been made, the Fed’s desire to promote “stable prices for the American people” is leading them to espouse a more restrictive stance for longer, until they can confidently agree that inflation is under control, as indicated by the data. Inflation appears to be the ongoing focus, with the labor market moderating but still healthy. Read More

May Overview Fed minutes referring to the most recent meeting showed that officials questioned whether policy was indeed restrictive enough. Participants wanted to see more “sustainable” progress on the road to their 2% inflation target and felt it would be necessary to keep a constrained policy stance for longer given concerns over the persistence of higher inflation readings which had been “disappointing” during the first quarter of 2024. Read More

April Overview Fed minutes relating to the March meeting showed that although nearly all participants felt it might be appropriate to reduce the Fed Funds rate later this year, they still needed to be convinced that inflation was “sustainably” on its way towards 2% before acting. Noting that improving supply conditions were a positive, while appreciating that the path to lower inflation would be “uneven,” participants acknowledged the continuation of strong economic data, and saw “disappointing readings” on inflation as a hurdle to clear before they had enough confidence to reduce their current policy stance. Indeed, by keeping its benchmark rate unchanged for the 6th time at the most recent meeting while citing the “lack of further progress” in bringing inflation to its target, the Fed further cemented its wait-and-see posture. In the post-meeting press conference, against the backdrop of stalled progress on inflation, Fed Chair Powell stated that they are willing to hold the current range “for as long as appropriate” as achieving “greater confidence will take longer than expected.” Understandably and accordingly, market expectations for the initial rate cut moved further back in the year while Treasury yields rose. Read More

March Overview As widely expected, the Fed held its benchmark rate range steady at 5.25-5.50% at its most recent meeting. The decision to do so was unanimous. Although the median rate expectations for 2024 remained the same (4.6%), projecting a total reduction of 75 bps by year-end, estimates for 2025 (3.9%) and 2026 (3.1%) moved upwards, suggesting a slightly tighter framework than before. Median economic projections saw growth estimates increase while the unemployment rate came down marginally. Inflation readings increased for this year, presumably as readings to date have come in higher than previously expected, while estimates for the latter years remained unchanged. Despite progress made to date, the Fed remains “attentive to inflation risks,” and given growth has held up and the labor market remains resilient, it is focused on leaving rates at a sufficiently restrictive level until it gets more evidence that inflation continues to converge on their longer-term target. The result has been a shift in market expectations for the timing of the first rate cut to the summer. Read More

February Overview In the absence of a Fed meeting this month, the market combed through the Fed minutes from the January meeting to divine the committee’s thoughts on the path and timing of a reduction in the Fed Funds rate. The minutes highlighted that although committee members believed rates were at their peak, and that they expect to lower rates going forward, it made more sense to wait before acting to ensure that the improvement in inflation was “sustainable.” The minutes noted that improving supply side effects related to labor markets, productivity, and supply chain improvements, along with their currently restrictive level of policy, were helping to make continued progress towards their goals. However, ultimately the message was that it paid to take their time and focus on the incoming data. With some seeing the risks to inflation “titled to the upside” and believing the risks of cutting too quickly could lead to the possibility that “progress could stall” and prolong their battle to reign inflation back in, they were inclined to keep their rate on hold. Indeed, as Fed Governor Waller would highlight in a recent speech after the meeting, data since the end of last year has been stronger and inflation prints have risen, thus giving support to the Fed to “not rush” to begin cutting rates. Read More

JANUARY Overview Economic growth continues to hold up. The labor market, as evidenced by the recent payroll numbers, continues to be healthy. Inflation is trending downwards. All of this is good news for the Fed. At the same time, it’s the continuity of the downward flection in price gains that the Fed wishes to see. Although the Fed is messaging that they expect rates to come down this year, they believe the extent and pace of these actions will most likely be slower than the market is expecting. Read More

December Overview With inflation trending downward, and the labor market softening, market expectations for a reversal of Fed policy are gaining traction. The fight against inflation however is not over in the eyes of the Fed, whose median projections still see it above their target for the next few years. In their efforts to remain strong at the helm, they have attempted to craft a balanced message, acknowledging the turn in certain key metrics while remaining vigilant as their work is not done. Read More

November Overview Labor and inflation data cooled over the month, raising the odds that the Fed may be through with its hiking cycle. However, despite market projections related thereto, the Fed is not ready to concede this position. While inflation is falling, and the labor market is slowly softening, there remains some distance between where the economy sits and the Fed’s desired targets. Until then, they see fit to remain vigilant. Read More