Federal Reserve Chair Jerome Powell has indicated that the central bank is not eager to lower interest rates at this time. Jeffrey Roach, chief economist at LPL Financial, joins Seana Smith and Madison Mills on Catalysts to discuss what lies ahead for the Fed’s current easing cycle and the implications of the central bank’s reliance on economic data.
“I think it boils down to this: the Fed has to acknowledge that data dependency comes with inherent risks, especially when you consider potential data revisions,” Roach notes. He adds, “Given the current circumstances, interpreting the next payroll report might be challenging, particularly with weather-related disruptions also at play.”
He elaborates that if labor data exceeds expectations, similar to the figures seen in October, “that could create some headwinds for those anticipating a rate cut in December. However, right now, the situation feels like a bit of a toss-up.”
Roach suggests that “the neutral interest rate might actually be somewhat higher” than the Fed’s target of 2%. “It wouldn’t surprise me if discussions about a higher long-term rate emerge more frequently, although it would likely remain around 3%,” he reflects.
In conclusion, Roach believes that Fed officials are “likely to adopt a pattern of cutting and pausing, which may involve a pause in December. If a cut does occur in December, they will certainly pause in January. This cut-and-pause strategy is aimed at addressing slight fluctuations in annual inflation metrics, which shouldn’t be interpreted as a shift in the overall trend.”
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