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The next week is FOMC Day of Fed, and it seems that it is going to be a highly controversial.
On the one hand, you have to cut the rate of 100BPS at the earliest to President Jerome Powell, President Trump pressed:
On the other hand, you have toe to the line; They are in a “waiting-and-look” mode. This is because they do not want to react in either a dovish or hakish direction, until they have a better idea where the tariff policy will be out.
However, nothing is also a policy decision.
Currently, there is 97% inherent possibility to stop the fed, so there is almost no hope to cut the next week:
However, there will also be a dot plot meeting in the next week, in which we will receive an update at the summary of Fed’s Economic Estimate (SEP). If the fed wanted to indicate a dowish tilt, the SEP would be used for that signal.
To guess whether this case will be, let’s take a look at some of the most recent economic figures that will pursue FOMC’s thinking next week.
Fed has insisted on data-dependent by trying to navigate the inflation rate above its 2% target for many years. Looking at the Taylor rule-to know how the tight or loose monetary policy is based on the maximum employment of the Fed and double-oriented, a historically accurate model-fed should be cut off to know, but not: but not:
Labor
This week we saw a big increase in continuing unemployed claims, emphasized how difficult it is to get a job when you lose one.
Although we have not seen the same bounce in the unemployment rate nor for the initial unemployed claims, it is unlikely that the companies are still hiring how low companies are still hiring. But they are not at the point of trimmed, either. We are currently in a rule.
This is an uncertain place. By the time the labor market deteriorates at the point where we see an increase in unemployment rate and negative payroll numbers, Fed Taylor will be far behind in relation to the rule-like model, as shown earlier.
inflation
Fed is not cut from the perspective of the labor market in pre-cutting rates, it is due to a concern about tariff passing into high inflation-thus questioning the fed’s mandate of stable prices.
This week’s CPI data, however, asks how large the tariff effect will be on inflation.
Core CPI came in 0.1% month a month, a huge negative side is that one in 73 economists examined:
In itself, it will be enough to give relief for the Fed that inflation is on its way for 2% target.
However, this issue is expected to inflation in the light of increase in tariffs:
After being burnt several times in the cutting, it became clear that inflation was on its way up to 2%, the Fed does not want to make the same mistake.
Keeping all this together, we have a unique position with a significant risk of possible policy error.
FOMC members are effectively making a deliberate decision that their response to be delayed in their response function, sitting on our hands and speculating on future figures that we are contrary to reacting to the data being found today.
This is not a great place.
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