Prysmian: There are differences within the Federal Reserve on how to balance inflation and growth, and more flexibility is needed based on data
Plausible pointed out that there are differences within the Federal Reserve on how to balance inflation and growth. Although forecasts indicate that there may be two rate cuts this year, some members expect that there will be no rate cuts or only one. The Federal Reserve's cautious stance and geopolitical uncertainties will affect the economic outlook, requiring flexible responses based on data. Although facing risks of slowing growth and inflation, the U.S. economy is unlikely to fall into recession, with potential growth around 2%. The inflation outlook is complex, with housing costs driving inflation, but adjustments in the rental market may bring it back to normal
According to Zhitong Finance APP, Pruce believes that although the median forecast reflects that the U.S. will have two rate cuts this year, the dot plot distribution also indicates that some FOMC members expect no rate cuts or only one rate cut, reflecting disagreements within the FOMC on how to balance inflation risks and growth concerns. The market's current expectations for rate cuts are more aggressive and may not have fully absorbed the hawkish signals reflected in these related forecasts. In summary, although facing slowing growth and persistent inflation risks, the U.S. economy may not fall into recession. The Federal Reserve's cautious stance, along with geopolitical and domestic uncertainties in the U.S., will continue to influence the economic outlook, requiring the Federal Reserve to respond flexibly based on data.
Reviewing the recent meetings of the Federal Reserve and its latest economic forecasts, the delicate balance between economic growth and inflation risks is the focus. The Federal Reserve has lowered its forecast for U.S. GDP growth, reflecting the warming uncertainty of existing policies and the global economy, which is expected to lead to a slowdown in U.S. economic growth later this year. However, the upward revision of inflation forecasts reflects that price pressures in areas such as goods and services may persist. This divergence is quite rare, as economic slowdowns are often accompanied by declining inflation. However, the Federal Reserve seems to view inflation pressures (especially those arising from tariffs) as a one-time shock, expecting them to dissipate by 2026.
From a macroeconomic perspective, although U.S. growth is likely to slow—especially as fiscal stimulus fades and labor market momentum weakens—the chances of the U.S. falling into recession in the near term are low. The potential growth rate in the U.S. is about 2%, which is moderate but does not reflect a severe recession. Factors leading to the slowdown include the diminishing effects of fiscal stimulus, the waning impact of pandemic-related savings, and tightening labor supply (partly due to reduced immigration inflows). While the U.S. may face some economic headwinds, the overall growth trend is expected to remain above recession levels.
The outlook for inflation may be more complex. Housing costs (especially owners' equivalent rent) have been a major driver of inflation, but with adjustments in the rental market, there are signs that this indicator may return to normal. However, in other areas, inflation faces upward risks, particularly in goods and services. Tariffs on Chinese imports will exacerbate inflationary pressures on commodity prices. The labor market remains a variable, with tight conditions in certain industries (especially in services outside of housing) potentially pushing up wages and maintaining inflation pressures