Latest news with #FederalOpenMarket
Straits Times
2 days ago
- Business
- Straits Times
US Fed minutes saw rising inflation, jobless risks as of May meeting
WASHINGTON - US Federal Reserve officials at their last meeting acknowledged they could face 'difficult tradeoffs' in coming months in the form of rising inflation alongside rising unemployment, an outlook buttressed by Fed staff projections of increased risks of a recession, according to newly released minutes of the May 6-7 session. The combination of inflation and unemployment rising in tandem would leave central bank officials forced to decide whether to prioritise fighting inflation with tighter monetary policy or cutting interest rates to support growth and employment. 'Almost all participants commented on the risk that inflation could prove to be more persistent than expected,' as the economy adapted to higher import taxes proposed by the Trump administration. 'Participants noted that the (Federal Open Market) Committee might face difficult tradeoffs if inflation proves to be more persistent while the outlooks for growth and employment weaken,' the minutes said. 'Participants agreed that uncertainty about the economic outlook had increased further, making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer.' The prospect of rising unemployment and higher inflation was outlined in staff briefings that projected a 'markedly' higher inflation rate this year due to the impact of tariffs and a job market 'expected to weaken substantially' with the unemployment rate rising above long-run estimates of full employment by the end of this year and remaining there for two years. The results of the May meeting and the more detailed account of it reflected in the minutes have since been overtaken by US President Donald Trump's decision to delay the most aggressive tariffs, in particular the 145 per cent levy on Chinese imports that threatened to grind a large share of global commerce to a halt. The shift caused many analysts to lower recessions risks that Fed staff as of early May had considered 'almost as likely as the baseline' of slowing but continued growth. But in theory those stiff tariffs are only on hold until July pending negotiations over final tax rates that have kept Fed officials and business executives in the dark about the economic landscape they may face in the next few months. The uncertainty still felt today was also the watchword at the meeting in early May, when the Fed decided to hold the benchmark policy rate steady in the 4.25 per cent to 4.5 per cent range. In a press conference after the meeting, Fed Chair Jerome Powell indicated the central bank was effectively sidelined until the Trump administration finalises its tariff plans and the impact on the economy becomes clearer, a view reiterated by Mr Powell and other Fed policymakers in the weeks since. As of early May, officials also noted that volatility in bond markets in the weeks before the meeting 'warranted monitoring,' and noted that a change in the US dollar's safe-haven status, along with rising Treasury bond yields, 'could have long-lasting implications for the economy.' The Fed next meets on June 17-18, when the central bank will release new projections from policymakers about their outlook for inflation, employment and economic growth in coming months and years, and the projected interest rate they feel would be appropriate. At their March meeting the median projection among policymakers was for two quarter point interest rate cuts by the end of 2025. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
Forbes
22-03-2025
- Business
- Forbes
When To Expect The Fed To Cut Interest Rates Again
Federal Reserve Chair Jerome Powell speaks during a news conference after the Federal Open Market ... [+] Committee meeting, Wednesday, March 19, 2025, at the Federal Reserve in Washington. The Fed is expected most likely likely cut interest rates again in June. (AP Photo/Jacquelyn Martin) The next interest rate cut will most likely come in June according to fixed income markets. The Federal Open Market Committee has held interest rates steady at meetings in January and March. The pause in interest rate cuts has primarily been due to waiting for further progress on disinflation at a time when the job market appears robust. However, economic uncertainty has risen, clouding the outlook for monetary policy. The FOMC sees elevated uncertainty in the economic outlook. Policymaker forecasts imply an average of two cuts in 2025, as updated on March 19. Importantly, despite the average expectation of two cuts remaining the same, the range of outcomes from policymakers is now skewed to fewer cuts than in December projections. Interest rate cuts could come if inflation cools further and the jobs market remains robust. Though policymakers do apparently see tariffs creating some inflation in 2025 on their recent projections. Federal Reserve Chair Jerome Powell commented on inflation saying, 'Some near-term measures of inflation expectations have recently moved up." At his March 19 press conference. Powell continued. "We see this in both market- and survey-based measures, and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 percent inflation goal.' Recession fears, which have increased somewhat based on survey data, could also trigger rate cuts. Despite recession fears, reported economic data has been broadly positive. Forecasting site Kalshi, puts the chance of a 2025 recession at 36%. Powell did not suggest interest rate cuts were imminent at his March 19 press conference. Rather, he emphasized considerable economic uncertainty. Often policymakers will hint a cut is coming at the next meeting to help manage expectations. Without evidence of that fixed income markets give only a 16% of a May 7 cut in interest rates. However, markets are confident that the FOMC will cut interest rates by June 18 giving a 78% chance that interest rates are below their current level of 4.25% to 4.5% by then according to the CME FedWatch Tool. For 2025 as a whole, fixed income markets see between two and four interest cuts as likely. In contrast, FOMC policymakers' projections imply a different view, implying two cuts as the most likely outcome with fewer cuts possible. Powell suggested that the lack of change in the interest rate forecast might be due to inertia in the face of uncertainty, 'We're going to have to see how things actually, actually work out. And the fact that there wasn't much change, I think that's partly because, you know, you see -- you see weaker growth but higher inflation, they kind of offset. And also, frankly, a little bit of inertia when it comes to changing something in this highly uncertain environment, you know, I think there is a level of inertia where you just say, maybe I'll stay where I am.' With assessments of economic uncertainty at very high levels compared to recent history, much will depend on how economic data plays out. There are rising fears of recession. For example, economic research from UCLA published in March suggested that, 'a downturn could result over the coming year or two.' This assessment argues that the impact of tariff levels perhaps rising to a level not seen in a century could lead to supply chain dislocation. Government spending cuts, too, may dampen demand. Lastly, immigration policies could reduce labor supply with particular impacts on the construction and agricultural sectors. Consumer confidence has also declined in recent surveys. However, reported economic data remains generally robust. For example, jobless claims as reported on March 20, remain consistent with levels over the past two years. In addition the unemployment rate was reported as 4.1% for February, this rate has remained in a narrow band of between 4% and 4.2% since May 2024 and is not at historically elevated levels. That said, it may take until perhaps May or later for the economic impact of recent policy changes to be fully assessed in reported economic data. For now, the FOMC is projecting two interest rate cuts for 2025, with the first perhaps coming in June. However, economic uncertainty is high, and the fixed income markets see a reasonable chance of deeper interest rate cuts. The FOMC often stress that their actions are data dependent, but that will be particularly true of the coming months as there is considerable divergence of economic forecasts.
