Rate Cuts Initiated as Fed Gains Confidence in Disinflation, Fears Labor Market Cooling
Already reducing the size?of rate cuts between September and November, any further “surprises”?in the data – specifically the inflation data – will likely warrant a reduced pace?of policy action as well, with Federal Reserve Chairman Jerome Powell himself unable to rule out the potential for a pause, or even a rate hike in the coming year.?
At the very least, policy is not on a predetermined path, and while changing conditions do likely warrant a further reduction in policy firming back towards neutral, we anticipate a very slow and tempered pace of Fed action.?Meanwhile, expectations of solid domestic growth, stubbornly sticky inflation, and – finally?– concerns of a bloated government balance sheet will continue to reshape expectations for higher longer-term rates, resulting in a more normal shaped curve as we look out further into the new year.?
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This week we offer an updated view on the economy, policy and what to expect looking out to the end of the year and beyond.
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