The American Federal Reserve chairman Jerome Powell testifies before a hearing of the senate bank, housing and urban affairs about “the half -yearly monetary policy report at the congress” in Capitol Hill in Washton, US, 11 February 2025.
Craig Hudson | Reuters
The popular story among the Federal Reserve policymakers nowadays is that the policy is “well positioned” to adapt to any upward or downward risks. However, it may be more accurate to say that the policy is stuck in position.
With an abundance of strangers who are swallowing through the economy and the corridors of Washington, the only equipment that the central bank can really be in these days is neutral because it can wait a long time for certainty for what is actually coming.
“In the past few weeks we have not only heard enthusiasm – in particular of banks, about possible shifts in tax and regulatory policy – but also widespread fear of future trade and immigration policy,” said President Raphael Bostic in Atlanta in A blog post. “These cross currents inject even more complexity in policy -making.”
Bostic’s comments came during an active week for what is known on Wall Street as “FedSpeak”, or the chatter that happens between policy meetings of chairman Jerome Powell, governors of the Central Bank and regional presidents.
Civil servants who have often spoken to the policy as “well-positioned”-the language is now a staple of post-meeting suggestions. But they are increasingly giving carefully about the volatility that comes from the aggressive trade and economic agenda of President Donald Trump, as well as other factors that can influence the policy.
“Uncertainty” is an increasingly common theme. Bostic are entitled on Thursday -blog post “Uncertainty even requires caution, humility in policy -making.” A day before, the interest of the interest of the meeting released minutes from the meeting on January 28-29, with a dozen references to the uncertain climate in The document.
The minutes that were specifically mentioned “increased uncertainty with regard to the scope, timing and possible economic effects of possible changes in trade, immigration, tax and regulatory policy.”
Uncertainty factors in the decision -making of the FED in two ways: the impact it has on the employment image, which is relatively stable, and inflation, which has been relaxed but could rise again if consumers and managers might have prizes about the impact rates.
Miss the goal
The FED focuses on inflation on 2%, a goal that has remained elusive for four years.
“At the moment I see the risks of inflation remain above the target as crooked to the upper part,” St. Louis Fed President Alberto Musalem told reporters on Thursday. “My basic scenario is one in which inflation continues to 2%, offering a monetary policy remains modestly restrictive, and that will take time. I think there is a potential for inflation to stay high and to delay activity. That is an alternative scenario, but I am attention.
The employee in the remark of Musalem is that the policy has ‘modest restrictive’, where he regards the current level of FED funds between 4.25%-4.5%. Bostic was a little less explicit in feeling the need to keep rates on hold, but emphasized that “this is not time for complacency” and noted that “extra threats for price stability could arise.”
Chicago Federal Reserve President Austan Goolsbee, who is thought to be one of the least Havikse FOMC, when it comes to inflation, was measured more in his rates’ assessment and did not comment in separate performances, including one at CNBC, where he he thinks the rates should have to go.
“If you only think of rates, it depends on how many countries they will apply and the great they will be, and the more it looks like a shock with a Covid format, the more nervous you should be, “Said Goolsbee.
Many risks for us
More generally, the Minutes of January indicated that a FED was very dedicated to potential shocks and is not interested in testing the waters with further interest rates. The summary of the meeting explicitly noted that committee members want “further progress of inflation before they want to make extra adjustments to the target range for the federal funds rate.”
There are also more than just rates and inflation to worry about.
The minutes characterized the risks for financial stability as ‘remarkable’, specifically in the field of leverage and the level of long -term debt that banks possess.
Prominent economist Mark Zandi – not normally an alarmist – said in a panel discussion presented by the Peter G. Peterson Foundation that he is concerned about dangers for the $ 46.2 trillion American bond market.
“In my opinion, the greatest risk is that we will see a large sale on the bond market,” says Zandi, the chief economist at Moody’s Analytics. “The bond market feels incredibly vulnerable to me. The plumbing has been broken. The primary dealers do not keep up with the amount of outstanding amount of debts.”
“There are just so many things coming together that I think there is a very important threat that we will see a big sale in the bond market in the coming 12 months,” he added.
In this climate, he said, there is a scarce opportunity for the Fed to lower the rates – although markets praise half a percentage point in the potential by the end of the year.
That is Wishful Thinking Given rates and other intangible assets hanging over the head of the Fed, said Zandi.
“I just don’t see the Fed rent rates here until you get a better feeling about inflation that comes back to Target,” he said. “The economy came in a reasonably good place in 2025. It feels like it is performing well. Must be able to endure storms. But it feels like many storms are coming.”
