The Fed Put Is Nowhere In Sight

2025-04-09 09:05:28 ET

Summary

• Inflation remains a significant challenge for the Fed, with lead indicators suggesting it will modestly trend higher, complicating the path to monetary easing.
• Despite a robust jobs market, uncertainty looms due to potential public sector layoffs and budget cuts, which could impact unemployment and economic growth.
• Economic growth faces headwinds from Trump 2.0 tariffs, budget cuts, and a strong dollar, but a broad-based recession is not yet evident.
• The Fed may resort to QE later in 2025 due to significant debt refinancing needs and potential pressures on funding markets, despite inflation concerns.

Betting on a sustained easing cycle is wishful thinking. However, despite what the headlines would have you believe, the outlook for the US economy is not all doom and gloom.

Inflation is still a problem for the Fed

The biggest headwind to a sustained easing of monetary policy has been, and remains, inflation. And while inflation has decelerated to a level to which the Fed has been able to initiate a number of rate cuts and effectively end QT, it remains far from levels which historically coincide with easy monetary policy.

Regardless of whether monetary policy is tight relative to inflation, we must remember all measures of inflation remain above the Fed’s 2% target....

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