Waiting for the Fed
Mixed messages have been emerging ahead of tomorrow’s monetary policy decision from the Federal Reserve. Here’s a reminder of the rollercoaster that left the Fed’s September decision as one of its move important post-Covid meetings. In the face of cooling inflation, the Fed begins a relatively aggressive interest rate cutting cycle, adjusting rates lower by 1% in little over three months at the end of 2024. Come 2025, noting the risk of tariffs and a healthy labour market, the Fed decides to hold rates in this more moderately restrictive area that they have now landed.
Skip forward a few months, and the economic world is being turned upside down by astronomic tariffs changing almost daily. The Fed sees that tariff turbulence as almost certainly inflation positive but critically also as only a one-time adjustment in prices, not an ongoing source of inflation. Still, with a jobs market that’s very strong, why not wait and see instead of getting burned by the ‘inflationary will be transitory’ narrative that left the Fed embarrassed post-Covid? So, it does. Now, leap with me another few months forward and we know that the solid jobs numbers being printed weren’t quite as reliable as the initial estimates claimed.
Revisions in labour market statistics show that the red-hot economy was significantly cooler than portrayed in the data. Indeed, as of Q3, there is very little evidence of fresh hiring in the US and near stagnant domestic consumption. The conclusion: a rate cut tomorrow. The big debate for now is whether the Fed leads with a 50-basis point cut as it did in September 2024 (unlikely I think) or a 25-basis point cut this time around. In addition, warnings are now circulating that if the presentation of tomorrow’s decision leads to the conclusion that this cut is also motivated by political influence then the path for equities and bonds may not be so favourable.
Discussion and Analysis by Charles Porter
Related Insights
Daily Brief – Defiance
Charles Porter
Tue 12 May 2026
Defiance Yesterday’s market was defying one of two things: logic or gravity. Come to think of it, perhaps both. Take cable, GBPUSD, yesterday. The key events beyond minor data releases centred around any chatter from either side of the Iranian conflict and Starmer singing for his supper. Sing he did and tweet the President did, […]
Daily Brief – Short-lived relief rally
Charles Porter
Tue 19 May 2026
Short-lived relief rally A tantrum in the bond market has continued to erode away at risk conditions in recent sessions. In the UK, the sell-off in gilts and corporate bonds has been particularly acute thanks to heightened political instability, the origins of which we have covered thoroughly in recent briefings. Yesterday, headlines delivered enough optimism […]
Daily Brief – Room to manoeuvre
Charles Porter
Tue 26 May 2026
Room to manoeuvre Kevin Warsh was sworn into office at the White House on Friday. Despite limited market movement on Friday, many prices gapped significantly come the open yesterday. Whilst the UK and US observed a bank holiday yesterday, many indices and currencies were on the move. The theme across the market was risk on […]
