Fed Signals Patience on Rate Cuts Despite Cooling Inflation
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The economy remains strong, with above-trend GDP growth, a tight job market, and resilient consumer spending. This reduces the urgency for the Fed to cut rates.
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Inflation is cooling for the right reasons - from improvements in supply chains rather than demand destruction. This means less economic "sacrifice" is needed.
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Markets are too aggressive in pricing expected rate cuts. The Fed intends to take a gradual approach to cuts to avoid fuelling inflation again.
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Other major central banks are also preaching patience on rate cuts until more confirmation of disinflation.
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The Fed expects it will take over 3 years to reach its final policy rate around 2.5%. This suggests a very gradual pace of cuts rather than front-loading.