đ EY Chief Economist: The Fed's 50 basis point rate cut is "reactive" rather than "forward-looking"
EY's chief economist Gregory Daco recently made an interesting point: he believes that the Fed's recent rate cut is more of a "reactive" move than a result based on forward-looking analysis.
He mentioned that Fed Chairman Powell himself said that if he had seen the July employment data earlier, he might have chosen to cut interest rates in July. But in fact, the unemployment rate rose to 4.3% after the July meeting, which made many people feel that the Fed dragged on too long and finally took action this month.
Daco also emphasized that the Fed needs to establish a stronger forward-looking framework rather than relying solely on data analysis. Therefore, he believes that it seems that the Fed's decision-making power in this regard needs to be improved. He also pointed out that Wall Street's expectations for the number of subsequent rate cuts are far greater than the decisions of Fed policymakers, which will have a greater impact on the market.
On the other hand, Fed policymakers this week expected two more rate cuts of 25 basis points each by the end of 2024, and four more rate cuts by 2025.
It is worth noting that there are also differences of opinion within the Fed on the issue of the expected number of additional rate cuts this year. Seven policymakers support another 25 basis point rate cut before the end of the year, nine members support an additional 50 basis point rate cut, and two policymakers support no more rate cuts.
đŹ Finally, do you think the Fed's rate cut strategy is reactive or forward-looking? What do you think of the difference between Wall Street and the Fed in their expectations for rate cuts? See you in the comments!
