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The Federal Reserve is assigned a difficult function. It should balance between a double mandate aimed at low inflation and unemployment, and often two competitors competing in particular in 2025.
We have seen increased unemployment and layoffs, and the progress of inflation stopped recently. The possibility of definitions that feed inflation later this year leaves the federal reserve in an impossible position: reduce prices and risk enlargement, or increased rates and risks that send the economy to recession.
Related: Goldman Sachs reveals the prediction of definitions and recession expectations
Given the risks, the federal reserve follows an approach to waiting and seeing to determine interest rates, forcing market and economists to rethink the expectations of reducing interest rates.
Photo and colon source; Chip Somodevilla & Sol; Getty Images
The risks of the Federal Reserve is behind the curve this year
It can be said that the economy is at a crossroads. Although economic activity was strong in 2024, cracks appear, and newly created definitions can be sent later this year.
The unemployment rate in the United States may reach 4.2 % of 3.4 % in 2023 and there was a continuous shield from workers recently. According to Challenger, Gray, & Christmas, 497,000 Americans got pink slips in the first quarter, due to the expiration of the technology sector and job losses associated with the Ministry of Government efficiency, or DOGE. There were 105441 discounts in April, an increase of 63 % over one year.
Related: Surprising Job Report resets the interest rates in feeding
Those who lose their jobs have less options than they did one year ago. Jollets and JolTs survey shows more than 900,000 unpaved jobs available in March for last year.
Job losses increase, although inflation exceeds the stubborn goal of inflation by 2 %. In March, the consumer price index enlarged 2.4 %, not changed from last September.
A mixture of poor job losses and inflation led to many Americans to rethink their spending, and transfer dollars from estimated purchases to necessities. After newly created definitions, this behavior is likely to continue this year.
Equightened to revive American manufacturing, President Donald Trump began a risky tariff plan. He established a 25 % tariff on Canada, Mexico and cars earlier this year and announced a mutual tariff higher than Qubaan on April 2, the so -called “Liberation Day”.
The market’s reaction to these definitions was negative. The S&P 500 reached its peak in mid -February, shortly after the announcement of the Mexico and Canada tariffs, and despite the last gathering, it continues to decrease by 4 %.
President Trump stopped most of the mutual definitions on April 9 to allow commercial negotiations. However, it has been left in another tariff, including a 145 % huge tariff on Chinese goods that raised definitions on some Chinese imports to about 160 %.
These definitions of prices are likely to increase many elements, which raises inflation. At the same time, the uncertainty in the customs tariff negatively affects feelings, and the leadership of families and companies to stop or cancel spending plans.
If this behavior continues, the federal reserve may find its decision to maintain interest rates on May 7, a mistake that puts it behind the curve in the formulation of the recession.
The analyst resets the interest rate on the reduction after FOMC failed to reduce prices
The Federal Reserve meets eight times a year to decide on the appropriate interest rate levels to ensure low inflation and unemployment.
She largely collected prices in 2022 and 2023 to curl fleeing before cutting prices three times in late 2024 to support the job market.
It was widely expected that the shift to monetary policy in getting rid of stocks, as shares rose sharply last year. Optimism was that the Federal Reserve will continue to reduce interest rates in 2025; However, the progress dependent on inflation and induction certainty has been out of the path of these predictions.
In the absence of a significant contraction in the economic activity that causes the unemployment rate to increase significantly, and more clarity in how the definitions affect inflation, the Federal Reserve turned into side lines.
As a result, the CME Fedwatch tool, which makes the interest rate expectations for the market participants by tracking the futures market, expects now that we will not see a reduction in the interest rate to at least July.
The FBI is currently determined by 4.25 % to 4.5 %. The Fedwatch tool puts the possibilities to 4 % to 4.25 % at the Federal Reserve meeting in June by only 20 %, a decrease from 55 % a week ago. The rates of 4 % to 4.25 % in July will increase to 52 % above 8 % a month ago.
Not everyone is convinced that we will see lower prices soon.
More economic analysis:
- The Federal Reserve’s inflation scale puts the risk of stagnation as the bite of tariff policies
- American recession jumps with a decrease in gross domestic product
- Like or not, the bond market rules everything
After President Powell explained the reason for keeping the rates that did not change in May, Barclays analysts updated their interest rate expectations. They may take them as the next for prices may disappoint.
“In the absence of a decisive turn in American economic data, FOMC seems comfortable to wait,” Barclays analysts wrote in a research note on May 8.
The Federal Reserve in 2025 is not what consumers and companies want to hear, but it is likely that it is likely to be.
“If it is clear that the next step is a reduction, President Powell has already been cut. The problem is that this is not clear at all.”
The fact is that there are a lot of unknown, and the risks are very high, so that the Federal Reserve does not have a minimal motivation to rush to lower prices.
“We believe that the risk of losing confidence in the target of inflation, which is 2 % Y/Y from FOMC, and the risk of policy makers to raise rates (or at least stay waiting), and the committee, especially the risk of unwanted reduction, makes the problem worse and requires sharp and costly reflection.” “The flexible labor market is driven by the confidence of the work that the definitions will be supervised, making it easy for Powell to adhere to its weapons not to provide preventive measures.”
Related: The Veteran Fund Director reveals the prediction of the S&P 500
