Economist Bruce Kasman and financial expert Joseph Lupton discuss the Fed's cautious optimism amidst soft inflation data. Topics include rate cutting cycles, economic indicators, long-term forecasts, and the Fed's influence on market expectations.
The Fed maintains a cautious but hopeful stance on rate cuts starting this year and continuing through 2026.
Inflation trends suggest potential early easing, with a need for sustained lower numbers for policy action.
Deep dives
Interpretation of Recent Events and CPI Trends
Discussions on recent headline events like the CPI and Fed meeting signaled a step in the right direction, cautiously optimistic about potential rate cuts as early as September if consistent trends continue. The focus is on stringing together three months of 2.5% or less annualized to consider rate cuts. Despite some strong CPI prints, there's a need for sustained lower numbers for policy action.
Fed's Easing Narrative and Inflation Forecast
The Fed's narrative maintains a gradual approach to easing, with future rate cuts likely but at a slow pace. Powell's cautious stance and guidance on inflation suggest a sustained approach despite recent surprises. The Fed's forecast for future rate levels remains consistent, signaling around 3% core CPI by the end of the year.
Insights on Inflation Risks and Economic Indicators
Discussion on inflation trends highlighted risks of continuous low-side readings indicating potential early easing. Consideration of healthcare wage impacts and data consistency in upcoming months to influence the Fed's reaction function. The focus remains on maintaining a balanced view on inflation amid evolving economic indicators.
In a consequential week for the US, the first soft inflation print in five months gave the Fed and markets some relief. The Fed remained cautious but hopeful with an unchanged narrative: still eyeing a rate cutting cycle that begins this year and continues with nine cuts through 2026.