“By March, the Fed should have several months of cleaner inflation and jobs data in hand, giving the committee more confidence on whether recent trends are signal or noise. If that cleaner data confirms continued disinflation alongside a cooling labor market, it will strengthen the case for resuming gradual cuts and continuing the move back toward neutral.”
Of course, what the actual neutral rate is has become a growing point of contention between Fed governors. That fact, combined with a stabilizing jobs market, likely leads the Fed to hold rates.
“With the unemployment rate showing recent signs of stabilization—and with widening divisions within the committee over how quickly to move rates back toward neutral—the Fed likely won’t have a strong case for a fourth straight cut,” he said. “That said, a March cut remains a possibility, especially if labor market conditions soften meaningfully over the remainder of the first quarter.”
A new-look FOMC
Of course, with a new year comes new regional governors, each with the chance to cast a vote on rate decisions. Williamson doesn’t see the switch having a major impact on the Fed board’s overall path.
“The rotation of regional Fed presidents isn’t likely to meaningfully shift the central bank’s appetite to cut rates,” he said. “Logan, Kashkari, and Hammack have all expressed a desire for a higher bar for further easing, while Paulson’s focus on labor market cooling adds a modest dovish counterweight. Even so, their collective views broadly resemble those of the officials they replace.”
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