The Federal Reserve is largely expected to hold interest rates steady for a fifth consecutive meeting at the conclusion of their meeting today.

Washington

Federal Reserve officials are closely evaluating whether current economic data support a shift in policy, particularly regarding inflation and the labor market. Some committee members, such as Governor Chris Waller, see limited risks from persistent inflation and support a rate cut, while others urge caution and call for more data before making a decision.

Analysts highlight signs of labor market softening, including low hiring and layoff rates, and suggest the Fed should consider these risks alongside inflation concerns. The discussion also addresses the impact of tariffs on inflation and the importance of transparency in the Fed's decision-making process. There is consensus that more data in the coming months will be crucial for determining the appropriate policy path.

What to look for in today's Fed decision

What kind of agreement can we make today at the Federal Reserve? What can we agree on? I think it'll be really interesting to see if the committee is getting more comfortable, having more conviction in their forecast that inflation may rise this year, but then come back down. So I think a lot of this discussion around what are the risks of the persistently high inflation? We know from Governor Chris Waller that he sees those risks as very low. And that's why he's in favor of a cut. But is the committee moving in that direction of, you know, moderating those risks, or is it real still? Are they still very much demanding more data to get comfortable with the idea of a rate cut? Claudia, what do you think? And it matters a lot what you think, because the SOM rule is often pointed to and was certainly pointed to at the end of last year for the 100 basis points of rate cuts in the second half. Do you see the same cracks that Chris Waller is seeing? I don't see this. I can see the cracks that he's pointing to. I maybe don't draw as strong an inference as he does. I do think it's time for the Fed to really be pivoting to why are you waiting? You know, what are you looking for in the data? What do you need to see with inflation? Right. Like focus on that, as opposed to the, well, we can wait. We saw a lot of discussion at the last press conference about, well, the economy is solid. The labor market is solid. So we can wait and get more data. And I think there are sufficient signs of weakening and some of the softening, the risk in the labor market. They've been with us for a while. Like these are not new. The low hiring rate paired with the low layoff rate. This is not new. And yet we do see signs of demand softening. We saw some of this looking at first half GDP numbers and hiring concentric. Like there are just a lot of signs that this is not a labor market that will hold up, you know, indefinitely. And so the Fed needs to back up. Indefinitely. And so the Fed needs to back off some using that as its safety blanket in terms of waiting for more data and recognize those risks are out there. We hear a lot about the risk to the inflation outlook. We should be hearing some more about the risk to the labor market outlook as well. There have been a number of people who have speculated that Fed chair Jay Powell might take an even more hawkish approach to policy, might signal that the labor economy is in a good place and that they're balanced roughly in their mandates in order to avoid accusations of political interference, that he's getting bullied by President Trump. Do you ascribe to any of those ideas or do you think that that's a bit speculative? The best way for the Fed to stay out of the politics as much as it can is to put its head down, parse through the data, be transparent, right? The data don't speak for themselves. We need to hear how is the FOMC interpreting the data? What are they looking for? Like that's the message he needs to stick with. It's they're not going to win. The Fed will not win if it plays politics like that's just not the game that it is well suited for, nor should it be doing it. So I think we should just get a lot more of their thinking and just lay it out there. That's part of the transparency. That's part of the accountability that comes with the Fed being the ones that make the decisions about interest rates. So Claudia, let's stay on the data. I just wonder if two CPI reports is enough between now and September to draw conclusions about how much tariff pass through we'll get and how much of that tariff pass through is going to stick around. Two more CPI prints could give us information both on the tariff pass through. I mean, the tariffs working their way through the economy, this is going to take time. And we could see, you know, ever rising tariff effects as we go into the to the September meeting. So, I mean, they're going to have to have a real explanation of how you would cut into a rising inflation environment. But we have also seen, you know, months of the outside of the tariffs. Look at the housing services. Look at the non-housing services. We've had some really encouraging numbers. A few more months of that could, you know, really strengthen the case that underlying inflation, set those tariffs aside, underlying inflation is really moving back down to target. And that that is a really important piece. And two more months of data in that direction can can help bolster the case for a rate cut based on the inflation risks are less. Do you think they're in a position today and through the summer to keep on saying the labor market is solid so we have the luxury of waiting? Can they write that in the statement once again this afternoon? They can write whatever they want to write in the statement. I think it would be misguided. I mean, we again, we have seen various pieces of information about the labor market that point to some weakening. And also, if you are running an economy with below trend growth and that's, you know, focusing on consumer spending, business fixed investment, kind of the core of it, you know, that that weakness does eventually show up in the labor market and the Fed itself. Its baseline forecast. So show some weakening in the labor market this year. So it seems completely appropriate to at least be pointing to the risk, pointing to that outlook. I mean, that's, you know, a very reasonable thing to be pointed. And I think they'll be a little flat footed if they just keep hanging on to the labor market is doing just fine. Economic activity is doing just fine because that's really I think that's a pretty one sided reading of the data right now.

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Rio de Janeiro

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Ottawa

Middle East Conflict

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Canberra

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Birmingham

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Jerusalem

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Hawaii

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New York

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London

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Kyiv

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Bogotá

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Moscow

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Zaporizhzhia

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Bangkok

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Kuala Lumpur

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Riedlingen

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Breakdown