Glen’s thoughts on the Fed raising rates this Fall.
1. No Rate Hikes or Immediate Cuts: The Fed is expected to signal that current policy is restrictive and well-positioned, indicating no immediate need to raise or cut rates due to solid economic activity and strong employment.
2. Conditional Rate Cuts Starting September: A narrow baseline of two rate cuts is anticipated this year, starting in September, conditional on a sustained decrease in inflation and improved balance in the real economy.
3. Persistent Inflation Concerns: If inflation remains persistent, the Fed will likely maintain current elevated rates for an extended period rather than implementing cuts.
4. Flexibility to Cut if Labor Market Weakens: The Fed is prepared to cut rates quickly if there is a significant weakening in the labor market.
5. Minimal Changes to Policy Statement: Modest changes to the FOMC statement are expected, reflecting slight progress in inflation control but not enough to warrant immediate rate cuts.
6. Economic Projections and Inflation Targets: The Summary of Economic Projections (SEP) will likely show a thin median projection of two cuts this year and three next, with core inflation projected at 2.8% for 2024 and 2.3% for 2025.
7. Focus on Inflation Data: The upcoming CPI data will be crucial in determining the Fed's next steps, with Powell expected to emphasize that any decision to cut rates will be based on clear and sustained progress in reducing inflation.