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FED: Daly "Very Comfortable" With Two Rate Cuts In 2025, Have To Be Agile

FED
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  • Daly: Progress towards target has slowed but that’s a typical pattern. It’s a bumpy process, you can’t focus on one or two more months. I saw this week as a close call, thinking was 75bps enough for the right sized recalibration but I ultimately decided 100bps was needed. We now need to be more cautious.
  • The SEP showed the median projection is two rate cuts in 2025. I was very comfortable with that, it makes sense to me. We have to remain agile. The word is uncertain. We’ve penciled in two cuts and then as we get further away from when we made that forecast the accuracy of it probably falls. We’re just going to continuously taking in new info. Every meeting is live from a discussion point re the right level of policy, but my projection is that it will take many fewer rate cuts than we thought but I’ll watch the economy and see if that works out.  

 

  • Q: How much disagreement was there on the FOMC at this meeting?
  • Daly: We still all agree on price stability and full employment and our efforts to get there. We have the healthy level of discussion and disagreement, you don’t want a FOMC that thinks exactly alike. We’re looking at a more uncertain world so it’s appropriate to have more disagreement, but they’re always framed to the same thing. 

  • The dispersion of forecasts is a feature not a bug. We might end up with fewer cuts than two, we might have to respond and end up with more if inflation falls faster or we see a significant weakening in the labor market. 

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  • Daly: Progress towards target has slowed but that’s a typical pattern. It’s a bumpy process, you can’t focus on one or two more months. I saw this week as a close call, thinking was 75bps enough for the right sized recalibration but I ultimately decided 100bps was needed. We now need to be more cautious.
  • The SEP showed the median projection is two rate cuts in 2025. I was very comfortable with that, it makes sense to me. We have to remain agile. The word is uncertain. We’ve penciled in two cuts and then as we get further away from when we made that forecast the accuracy of it probably falls. We’re just going to continuously taking in new info. Every meeting is live from a discussion point re the right level of policy, but my projection is that it will take many fewer rate cuts than we thought but I’ll watch the economy and see if that works out.  

 

  • Q: How much disagreement was there on the FOMC at this meeting?
  • Daly: We still all agree on price stability and full employment and our efforts to get there. We have the healthy level of discussion and disagreement, you don’t want a FOMC that thinks exactly alike. We’re looking at a more uncertain world so it’s appropriate to have more disagreement, but they’re always framed to the same thing. 

  • The dispersion of forecasts is a feature not a bug. We might end up with fewer cuts than two, we might have to respond and end up with more if inflation falls faster or we see a significant weakening in the labor market. 

Keep reading...Show less