San Francisco Federal Reserve: The Federal Reserve is expected to make a "strong and systematic" response to U.S. inflation and employment conditions
The research report from the San Francisco Federal Reserve shows that investors and analysts expect the Federal Reserve to respond "strongly and systematically" to changes in U.S. inflation and the labor market. The report points out that financial markets have become more sensitive to economic data, especially in 2022, when the Federal Reserve's response to inflation and employment data was significant. Recent economic data has been weak, and the market expects the Federal Reserve to cut interest rates by 25 basis points in June and October of this year
According to the Zhitong Finance APP, a research report released by the San Francisco Fed on Monday shows that investors and analysts expect the Federal Reserve to respond "strongly and systematically" to changes in inflation and the labor market. The report highlights the current financial market's sensitivity to U.S. economic data.
The Federal Reserve's response to economic data has significantly intensified in 2022, initially driven by inflation data, and later by labor market data, based on an analysis of professional forecasts and the bond market trends published in the latest Economic Letter from the regional Fed.
This finding aligns with the Federal Reserve's actual response to inflation, as U.S. inflation rose in 2021 but did not prompt the Fed to raise interest rates until 2022. It also corresponds with the Fed's response to labor market data, which showed a significant weakening in the middle of last year, contributing to the Fed's decision to lower the policy interest rate by a full percentage point starting in September.
The Federal Reserve's target policy interest rate currently ranges between 4.25% and 4.50%. Recent weaker economic data, including a survey released on Friday showing that business activity fell to a 17-month low this month, has reinforced market bets on two rate cuts of 25 basis points this year.
Concerns about stagnating economic growth seem to outweigh worries about rising inflation, as evidenced in recent surveys, at least regarding market bets on how the Fed will respond with monetary policy.
Current pricing expectations for interest rate futures indicate that the Fed's first rate cut this year is anticipated to occur in June, with the second potentially as early as October