NAB Morning Call Fed focused on “signal to noise” ratio
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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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Fed Actions and Forecasts
- The Fed kept interest rates steady, lowered growth projections, and raised inflation and unemployment forecasts.
- These changes reflect uncertainty around economic policies, but the dot plot remained largely unchanged.
Market Reactions and Fed's View
- Markets reacted with higher stocks, lower yields, and a weaker dollar due to uncertainty about US economic growth.
- The Fed acknowledged this uncertainty and lowered growth forecasts, but viewed the inflation bump as temporary.
Basis for Fed's Revisions
- The Fed's downward revisions are based on potential policy impacts, not current data trends.
- This approach seems unusual for the Fed, as it typically relies on evidence-based decision-making.