Financial markets are pricing in a series of rate cuts by the Federal Reserve, starting in May and targeting a range of 4.00% - 4.25% by year-end. Federal Reserve Chair Jerome Powell, in an interview on 60 Minutes, stated that the Fed would not wait to reach a 2% inflation rate before cutting rates and expressed confidence in avoiding a crisis akin to 2008. US Treasury Secretary Yellen confirmed that the Fed's preferred inflation gauge is currently at exactly 2%. Analysts, including Claudia Sahm in a Bloomberg Opinion piece, argue that by setting a high threshold for confidence that inflation is on a downward trajectory to the 2% target, the Fed allows economic data, rather than politics, to guide interest rate decisions. This approach suggests that inflation could continue to decelerate without leading to a recession. Inflation expectations have moderated to levels close to the Fed's mandate, with breakevens at 2.25%. Joe Brusuelas forecasts that the personal consumption expenditures price index, the Fed's favored inflation measure, will hit the 2% target by midyear, prompting the Fed to lower its policy rate.
BRUSUELAS: “.. We now expect that the Federal Reserve’s preferred measure of inflation—the personal consumption expenditures price index—will reach the central bank’s target of 2% by midyear ..” 🇺🇸 - @joebrusuelas #PCE https://t.co/hW9VlMZdxR
BRUSUELAS: “.. We now expect that the Federal Reserve’s preferred measure of inflation—the personal consumption expenditures price index—will reach the central bank’s target of 2% by midyear, which will lead the Fed to reduce its policy rate.” 🇺🇸 - @joebrusuelas #PCE https://t.co/a1QqLPBN0z
Inflation expectations are more important than actual measured inflation (and certainly their seasonal adjustment revisions). At this point inflation expectations have meaningfully moderated and are roughly at or near the Fed's mandate in most cases. Breakevens are at 2.25%: https://t.co/Yv3ClCO21M
"By putting a high bar on its confidence inflation is falling to its 2% target, the Fed can allow the data to drive interest rates, not politics. Even if the Fed waits longer than necessary, data suggest inflation will slow further without a recession." -@Claudia_Sahm, @opinion https://t.co/pIoxkxEoxa
🔴 US TREASURY SECRETARY YELLEN: THE FED'S PREFERRED INFLATION GAUGE RUNNING AT EXACTLY 2%.
Markets price in rate cuts starting in May, reaching 4.00% - 4.25% by the end of the year. Jerome Powell on 60 Minutes: • “We wouldn’t wait to get to 2% [inflation] to cut rates.” • “I don’t think there’s much risk of a repeat of 2008.” https://t.co/5UG1pw7HCS