Traders Diverging From Economists Puts Fed in a Bind
The market is signaling that the economy needs lower interest rates, but the central bank is afraid of fostering bubbles.
Fed Chair Jerome Powell faces an inflation conundrum.
Photographer: Bloomberg
The market wants the Federal Reserve to reduce interest rates. Economists, on the always present other hand, are insistent that policy makers should not cut and stand pat. This divergence in opinion between the market and economists that was initially an interesting curiosity has metastasized into a headache for the Fed.
Why is this happening? Economists see strong growth, citing the better-than-expected 3.2% gain in first-quarter gross domestic product, the impressive 236,000 increase in April payrolls and the rebound in many economic statistics since the fourth quarter. Some economists are even mockingly asking, “where’s the recession?” They are not wrong.