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2025-09-18 19:50:40
[Data Confused the Fed, Clouding Policy Path] ⑴ The Federal Reserve announced its first interest rate cut in nearly nine months on Wednesday, citing growing risks in the labor market as the rationale. ⑵ Although the Fed Chair claimed that employment risks had risen significantly and outweighed inflation risks, policymakers lowered their median unemployment rate forecasts for 2026 and 2027 to 4.4% and 4.3%, respectively. ⑶ The Fed also raised its GDP growth forecasts for this year and next, as well as its inflation outlook for next year. ⑷ The updated dot plot shows that officials anticipate three rate cuts this year, up from two in June, but they appear to lack confidence in these projections, with the Chair admitting to being in a "meeting-by-meeting" decision-making mode. ⑸ Overall, the Fed, while citing downside risks to the labor market, raised its growth and inflation forecasts and lowered its unemployment rate forecast, demonstrating a lack of consensus within the Fed on the economic outlook. ⑹ One institutional strategist noted multiple inconsistencies between the Fed's dot plot and its economic forecasts. ⑺ Furthermore, policymakers face significant uncertainty regarding both the employment and inflation outlooks. For example, while the unemployment rate remains low, monthly non-farm payroll growth has declined sharply. ⑻ Furthermore, Trump's tariff rhetoric and its potential impact have created uncertainty about the inflation outlook. ⑼ Another chief economist also stated that the Fed faces a tension between its dual mandates of price stability and maximum sustainable employment, which lies at the heart of its internal forecasting contradictions. ⑽ Ultimately, in the absence of a "risk-free" policy path, whether the Fed's interest rate cuts are the right path remains uncertain.
