Latest Updates
Unhappy with the Fed’s forecast today? The next one will be released on March 19, and that’s 58 days after Inauguration Day.
“We have often noted a lack of utility in relying on these forecasts and the Fed’s forward guidance since they do not know exactly what they are going to do or when they’re going to do it,” said Thomas Simons, economist at Jefferies.
“This concept has never felt more true than now, but the next [forecast] in March should be very interesting,” Simons said.
“Santa came early and dropped a 25 basis point rate cut in the market’s stocking but accompanied it with a note saying that there would be coal next year.”
That about sums up the Fed’s action on Wednesday, says Chris Zaccarelli, chief investment officer at Northlight Asset Management in Charlotte. N.C.
In a brutal day for investors, stocks tanked after the Fed signaled fewer interest-rate cuts next year because of sticky inflation.
Why cut interest rates now, with the economy still strong and inflation higher than the Federal Reserve would like?
Fed chief Jerome Powell got pestered with that question in his press conference on Wednesday. One answer he kept defaulting to: A weaker labor market.
Powell contended the labor market is weaker now than it was 2019 shortly before the pandemic. He said hiring has slowed, people aren’t find jobs easily and businesses have no plans to sharply increase employment.
Powell has previously promised the Fed would not let unemployment rise much further than the current 4.2% rate. The Fed forecast the jobless rate to peak at 4.3% in 2025.
“That’s part of the reason to explain why we moved ahead today,” he said.
Powell also repeated his view the labor market is not a major source of inflation.
“We dont think we need further cooling in the labor market to get us down to 2% (inflation).”
Why did the Fed’s inflation forecast for 2025 rise so much? And why did it sharply scale back planned rate cuts?
Part of the reason is the risk of President-elect Trump’s tariffs and other policies that could raise inflation.
Fed officials normally don’t like to guess how future changes in the law by Congress and the White House will affect their forecast on interest rates and inflation.
Yet some top officials raised their inflation forecasts in 2025 in part based on the Trump’s proposed policies.
Fed Chairman Jerome Powell, for his part, appeared to avoid mentioning Trump by name. But he acknowledge some senior Fed officials “did identify policy uncertainty as one of the reasons” to forecast fewer rate cuts.
“It’s not unlike driving on a foggy night or walking into a dark room full of furniture,” Powell elaborated. “You just slow down.”
