Weekly Commentary: The Fed And The Third Mandate

2025-09-22 16:30:00 ET

The market came into the week pricing a 3.63% year-end Fed policy rate. After Wednesday’s 25 bps rate cut, the market ended the week pricing the same 3.63% rate.

Wall Street received the cut they beckoned for. Job growth has slowed meaningfully, while inflation remains significantly above target. As Chair Powell put it: “So we have a situation where we have two-sided risk, and that means there’s no risk-free path. And, so, it’s quite a difficult situation for policymakers.”

History may not repeat, but it’s that rhyming thing. Parallels to the culmination of the “Roaring Twenties” are as fascinating as they are unnerving. Revisionists (i.e., Milton Friedman and Ben Bernanke) have argued that the Fed’s overly restrictive rate policy was a defining contributor to the economic downturn and 1929 crash. Contemporaneous analyses and commentary share a very different experience. Credit growth and speculative excess pointed to destabilizing late-cycle loose conditions. Fed officials were understandably mindful that easier monetary policy would only stoke precarious financial excess....

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