Fed policy outlook: the FOMC is on hold for now and for the medium term
Fed policy outlook: the FOMC is on hold for now and for the medium term. amid a slowing in global growth, tighter financial conditions, and soft inflation. However, as the CPI data showed, inflation, and particularly wage inflation, bears watching as those are key inputs for the Fed's policy calculus. Yet, many on the Fed, even the hawks, are doubtful about the Phillips Curve curve linkages currently, and it will take more than one or two reports to move the Committee back into tightening mode. Fed Chairman Powell's shift to a more patient and flexible approach is the new mantra, and the January 30 policy statement even dropped the phrase about the need for "some further gradual increases" in the funds rate. KC Fed's George, one time one of the most hawkish, noted late yesterday that the economy is performing differently than in the past that it's challenging to track inflation effects alongside a low jobless rate given a more service oriented economy. While the market has largely priced out any further tightening, analysts still project another 25 bp rate hike in June.