A Resilient Economy, Sticky Inflation, and Aggressive Fiscal Policy Agenda Limit Downside Potential for Fed Rate Relief
Even with an additional rate cut at year-end, monetary policy makers clearly adopted a more “cautious” tone, opening the door for a near term pause which was executed last month. A widely anticipated decision, the accompanying upwards?assessment of the labor market and downwards assessment of inflation improvement in the statement suggest the Fed is increasingly willing to take a prolonged?position on the sideline, as the Committee continues to assess the evolution of conditions and, in particular, the impact of fiscal policy.
Amid modest growth and a restrained monetary policy pathway at least near-term, fiscal policy will serve as a significant wild card for the economy, as a potentially ambitious agenda around taxes and tariffs likely results in ongoing positive growth coupled with persistent, above-target inflation and growing budget strains.?
This week we offer an updated view on the economy, policy and what to expect looking out to the rest of the year and beyond.