What’s Next for Fed Policy? Here’s What the Data, and the Rules, Really Say
As we head into the fall of 2025, all eyes are on the Federal Reserve. Will they finally cut rates? If so, by how much, and when?
Here’s the bottom line from the latest numbers:
- Inflation isn’t tamed yet. Core PCE sits at 2.8%, progress, but not quite there.
- Growth rebounded in Q2 (+3.0%), but much of that is noise from trade swings.
- Labor market? Cooling fast. July payrolls +73k, unemployment up to 4.2%, and downward revisions suggest momentum is slowing.
So what do the “seven simple monetary policy rules” (Cleveland Fed) and the Philadelphia Fed’s benchmarking say? Most classic rules say: stay put. But look closer, forward-looking and inertial rules, the ones that factor in rising joblessness, argue it’s time for a small cut.
My take:
If PPI and PCE numbers don’t surprise this month, a 25 bp cut in September is justified. The labor market is softening, inflation’s cooling, and growth is normalizing. Why not a bigger move? Core inflation is still stubborn, and some rules cluster in the mid-4s. Move too quickly, and you risk reigniting inflation.
Base case:
Expect two cuts this year, September and December, if disinflation and labor softness persist. If things deteriorate further, a third cut could be on the table. But if inflation sticks, the Fed may hold back.
Want the full story?
You can read and download the complete article at https://nedgandevani.nmgfunds.com/articles/
And for a much deeper dive into these monetary debates, check out my recent book, Escaping the Trade Deficit on Amazon. It unpacks these challenges, and potential solutions, in detail.
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