NAB Morning Call
Fed focused on “signal to noise” ratio
Mar 19, 2025
Gavin Friend, NAB’s market economist, breaks down the Federal Reserve's recent decision to hold rates steady amid shifting growth and inflation forecasts. He discusses how the Fed is in a 'wait-and-see' mode, particularly influenced by political factors and trade policies. The impacts of tariffs on inflation are considered transitory, according to Powell's remarks. Additionally, Gavin touches on the cautious approaches of the Bank of Japan and Bank of England. Insights into Australia’s job market also highlight expectations for a slight dip in unemployment.
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Quick takeaways
- The Federal Reserve is adopting a cautious wait-and-see approach as it navigates uncertainties in the U.S. economic outlook.
- Market reactions indicate heightened confidence, with rising stock prices and falling bond yields despite slow growth and inflation adjustments.
Deep dives
The Fed's Signal Amid Economic Noise
The Federal Reserve is facing an overwhelming amount of noise that complicates the analysis of key economic signals regarding inflation, unemployment, and growth. Chair Jerome Powell highlighted the need to discern what is essential amid this noise as the Fed confronts uncertainties in the U.S. economic outlook. Recent adjustments in economic forecasts reflect a slower growth trajectory, with projections for 2025 reduced from 2.1% to 1.7%, along with a rise in inflation expectations. This suggests that while the economy is moderating, it is still relatively healthy, maintaining low unemployment rates around 4.1%.
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