The Fed Won’t Do Slow and Steady If the Labor Market Wobbles
The central bank has shown it’s not afraid to make aggressive policy moves when inflation or a weakening economy demand.
Many questions on the economy remain.
Photographer: Kevin Dietsch/Getty Images North AmericaI wrote last week about how interest rate cuts in 2024 should boost cyclical areas of the economy that were already set to rebound, lifting economic growth. The bond market’s subsequent response to some noisy labor market data shows it’s worth considering how the Federal Reserve would respond if a different scenario played out.
Regardless of which outcome we end up getting, the slow-and-steady pace of policy easing currently priced by markets is likely to be wrong. The world in which the fed funds rate is more than 100 basis points lower by the end of the year is one where we can expect at least one outsized 50 basis-point cut, and probably relatively early in the cycle.