The US Fed seems as clueless as markets about its 2025 path

Powell didn't dwell on Trump uncertainty. That's understandable

- Jonathan Levin

In normal times, the conduct of monetary policy is like driving a car through a fog of uncertainty. You have a general idea of where you're going, but must move slowly to avoid accidents. At the moment, it's more like driving while double blindfolded—in a car with malfunctioning breaks. The most prudent move is to stop.

With this week's decision, the US Federal Reserve has now cut rates by 100 basis points to 4.25%-4.5%, appropriate adjustments given the moderation in inflation from its peaks of 2022. But nobody knows what comes next—and I mean nobody. The key feature of the Fed's latest economic projections was the uncertainty around them. The median forecaster on the Fed's rate-setting panel projects that inflation progress will slow meaningfully in 2025, and that the central bank will cut rates just two more times by next December. But among the 19 Fed board members and Federal Reserve Bank presidents, 15 now say that the risks to their forecasts for core personal consumption expenditures inflation data are weighted to the upside, the most since 2022; 14 said that their uncertainty about core PCE, the Fed's favoured inflation gauge, had increased since they last filled out the survey in September.