Let’s dive into the recent chatter surrounding the Fed’s shift in interest rates. You may have come across discussions in the news about the unexpected pivot and it got me wondering– does the Fed take politics into account? Was the pivot a genuine surprise? And if it caught us off guard, does that imply a political motive? So many questions, right? Since the future of interest rates is at the forefront of many minds, let’s take a closer look.
I’ll keep it concise with some quick reflections:
- The Fed’s abrupt shift to a hawkish stance in September is noteworthy, particularly when compared to June and December.
- The defensiveness in September makes sense, considering the changes in inflation metrics and cutting-edge indicators like fuel prices during that period.
- While the Fed acknowledges considering politics, it emphasizes avoiding taking sides, in line with its mandate. Some argue that the current pivot is politically timed, but given the earlier points, the justification appears valid.
- Surprise alert: the pivot isn’t a recent occurrence. It actually began in mid-October.
- Despite the Fed Funds Rate sitting at the cycle’s ceiling of 5.375, indicating restriction, a potential cut to 4.625% by the end of 2024 would still be restrictive. Given core month-over-month inflation in the 0.1-0.3 range, this level of restriction makes sense if we’re aiming for a soft landing. It would be a different story if the Fed were cutting rates or projecting an accommodative Fed Funds Rate – but that’s not the case.
- In a nutshell: September stood out as the hawkish outlier, but December is simply realigning with June.
I hope this sheds some light on the recent moves by the Fed! Feel free to share any questions or thoughts. Here’s to staying informed!