According to Odaily Planet Daily, macro research firm TS Lombard said that implementing loose policies too quickly increases the risk that the current low inflation rate will be fleeting, especially in the context of continued excess liquidity.
The firm’s guess is that unless the data suddenly deteriorates, the Fed will stick to its pace of 25 basis points of rate cuts per meeting. The market has already been a step or two ahead of the Fed.
With an economic slowdown looming, the Fed’s federal funds rate would reach 3.75%, but a recession would ultimately be avoided and the expected return to 2% inflation would prove to be an illusion.
The firm said the market is deliberately ignoring the risk of a worse inflation outcome without even considering what Harris or the Trump administration would do. However, the Fed should not ignore the inflation risks posed by excess liquidity.
