Monetary Policy

If the next month delivers either another round of soft inflation data, or a weak jobs report, the FOMC should be prepared to deliver a cut in July. If they continue to delay beginning rate cuts to gain certainty, they should consider a 50 bps cut for their first cut.

With the labor market still strong and April inflation representing an improvement over Q1 but still not good enough, the committee is in “looking for confidence” mode.

Every member that's spoken since the March meeting has expressed both a further desire to be patient on starting rate cuts (in response to the inflation data) and confidence that holding rates steady for longer will, on the margin, come with less downside risk to the labor market.

Our baseline forecast of the dots sees most of the dots holding steady, with some dots taking cuts off for this year. . This leaves three cuts as our baseline median dot—but just barely.

With lots of new data around the corner, the Fed will want to keep its options open.

There will be a time and a place for a more thorough retrospective of this still-unfolding (dis)inflationary episode, but it would be premature to make strong declarations at this juncture. We should all be thrilled by the past 6-7 months of inflation data, but it is ultimately only 6-7