The Federal Open Market Committee is expected to hold rates steady for the second straight meeting. However, the bigger question is what is the Fed planning to do going forward. Besides the rate decision, we also get a look at the famous dot plot which will give us an idea of what the Fed believes will happen to the economy going forward.
Nick Timiraos, at the Wall Street Journal, noted yesterday most officials are expected to pencil in one or two rate cuts this year. However, they are likely to obscure “how the Fed’s wait-and-see holding pattern has undergone an important reset”
- “The Fed can cut because of good news—inflation has declined—as was the case last year. Officials can also cut because of bad news—the economy is sputtering.”
What is the likely reason for a cut now? “The case for the first type of cuts has dimmed…Tariffs represent an economic shock that can suddenly decrease the economy’s ability to supply goods or services, sending up prices while weakening economic growth.”
Bottom Line: Fed cuts are back to where they used to be. Cut when things are too bad and raise when things are too good.
