Instead, the message has been 'more cuts are coming'. Fed Governor Chris Waller on Wednesday said he will support further cuts in 2025 and that inflation will continue to make progress towards 2%.
The answer: He's not being stubborn, but practical.
That's not easing for the real economy, it's tightening. Now we could certainly argue on the factors behind it and whether the Fed contributed it to it via policy mistake. I'd say it's some combination of:
The Fed cutting too aggressivelyThe economy performing better than expectedElection results leading to deficit worriesElection results leading to tariff worriesThe most-obvious lever for this is housing, which is highly rate-sensitive. The IYR real estate ETF is down 10% since the peak in September. While the home builder ETF is down 20%.
The pain will eventually filter through to businesses and consumers as well. It's that looming that's keeping the Fed cautious.With rates now near cycle peaks, they have every reason to expect that some pain is in the pipeline for the economy.
Mixed in with all that are some real political uncertainties that are also keeping the Fed cautious. With all that, don't expect a true pivot to neutral any time soon.
This article was written by Adam Button at www.forexlive.com. Read More Details
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