Inflation isn’t the only thing the Fed is watching.
Transcript:
CAROLINE WOODS: The Fed meets this week interest rate decision on Wednesday. What are you expecting from Chair Powell and team? And when do you think they finally will cut rates?
BRIAN LEVITT: Yeah so the Federal Reserve is not likely to make any big announcement without us knowing it well in advance. This is a Fed that is very committed to keeping the market abreast of what they’re going to be doing, so nothing significant. They may use it as an opportunity to recognize perhaps a little bit of crack in the labor market. We’re seeing jobless claims up a little bit, continuing claims up a bit. So that’s a leading indicator for the job market. And the Fed could mention that give a signal to the market that we’re focusing more on the labor market rather than a potential price shock you can get from tariffs.
And so the next step is going likely to be further easing. I’m not overly that concerned whether it’s September or December or ultimately the move is going to be lower on the short end of the curve. We can’t persist forever at a flatter and inverted yield curve. And so we’re going to see rates move gradually back down to neutral, which I would think would be close to 3.5% or so. If you go lower than that, that’s a bad outcome because it means you’re in a recession and the Fed missed it and has to respond very aggressively.
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