NEAM Insights

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

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