The Fed is as clueless as markets

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

- JONATHAN LEVIN

With its decision Wednesday, the Federal Reserve has now cut rates by 100 basis points to 4.25-4.5 per cent, appropriate adjustments given the meaningful moderation in inflation from the 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 surrounding them. The median forecaster on the Fed's rate-setting committee now 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 (PCE) inflation data are weighted to the upside, the most since 2022. Fourteen said that their uncertainty about core PCE, the Fed's favoured inflation gauge, had increased since they last filled out the survey in September.

Why is everyone so uncertain all of a sudden?