US Federal Reserve Chairman Jerome Powell held a hearing with the Senate Bank, Housing and Urban Affairs Committee on “Semi-annual Monetary Policy Report to Congress” at Capitol Hill, Washington on February 11, 2025. He testifies in front of the
Craig Hudson | Reuters
A popular story among Federal Reserve policymakers these days is that policies are “good positioned” to adapt to the upside down or negative risks that go ahead. However, it may be more accurate to say that the policy is in place.
With the wealth of unknowns swirling the economy and the halls of Washington, the only equipment that a central bank can actually do is neutral as it actually waits long for certainty in the future.
“In recent weeks, we have heard not only enthusiasm from banks about possible changes in tax and regulatory policies, but also widespread fears about future trade and immigration policies,” said Atlanta Federal President Rafael Bostic. I mentioned it in a blog post. “These cross-currents inject more complexity into policymaking.”
Bostic’s comments came in an active week as what is known as “Fedspeak” on Wall Street or as a chatter that occurs between policy meetings from Chairman Jerome Powell, central bank governor and regional presidents. Ta.
Officials who frequently described the policy as “good placement” said the language has now become a staple of post-meeting statements. But they are increasingly expressing caution about President Donald Trump’s aggressive trade and volatility from the economic agenda, as well as other factors that could affect policy.
“Uncertainty” is an increasingly common theme. In fact, Bostic entitled his Thursday blog post, “Uncertainty calls for attention, policy making humility.” A day ago, the Federal Open Market Committee on Rate Setting released minutes from its January 28th-29th meeting. Dozens of references to uncertain climate in the document were mentioned.
The minutes state that “increasing uncertainty regarding the scope, timing and potential economic impacts of possible changes to trade, immigration, fiscal and regulatory policies.”
Two ways in which uncertainty in the Fed’s decision-making effect is: the impact it has on relatively stable employment situations and the inflation that could rise again as consumers and business leaders are surprised about the impact. It could rise again. I have the price.
There is no target
The Fed targets 2% inflation, a target that is trapped in four years.
“Now I think the risk of inflation exceeds the target,” St. Louis Fried President Alberto Musalem told reporters Thursday. “My baseline scenario is that inflation continues to converge to 2% and monetary policy delivery remains modestly restricted, which will take time. Inflation may be high and slower activity. I think there is. It’s a scenario, not a baseline scenario, but I’m paying attention to that.”
Musalem’s comment operatives say the policy is “conservatively restrictive.” This considers the current level of the Fed fund is between 4.25% and 4.5%. Bostic didn’t make it a bit clear that he felt the need to hold back interest rates, but emphasized that “this is not a time of self-satisfaction,” and that “an additional threat to price stability could emerge “He said.
Chicago Federal Reserve President Austan Ghoolsby is considered to be one of the fewest members of Hawkish FOMC when it comes to inflation, and provides commentary with separate appearances, including CNBC, which is more measured in tariff ratings. There wasn’t. go.
“If you’re just thinking about tariffs, it depends on how many countries they apply to and how big they get, and the more it looks like a COVID-sized shock, the more you get nervous It should be, “Goursby said.
Many risks in the future
But more broadly, January minutes show a highly tuned Fed to potential shocks and that they are not interested in testing water with further interest rate movements. The meeting outline noted that committee members hope for “more progress in inflation before making additional adjustments to the target range of federal fund rates.”
And it’s not just about worrying about tariffs and inflation.
The minutes characterized the risks to financial stability as “notable”, particularly as the area of leverage and the level of long-term debt held by banks.
Notable economist Mark Zandy, who is not normally on alert, said in a panel discussion presented by the Peter G. Peterson Foundation that he is concerned about the dangers to the US bond market in the 46.2 trillion .
“In my view, the biggest risk is seeing massive selling in the bond market,” says Zandy, chief economist for Moody’s analysis. “I feel the bond market is incredibly fragile to me. The plumbing is broken. The major dealers are not keeping up to the amount of outstanding debt.”
“There’s so much coming together, so I think we’ll see a big sale in the bond market at some point in the next 12 months,” he added.
He said there is little chance that the Fed will cut interest rates in this climate.
It’s a wishful thinking, taking into account the tariffs and other intangible assets hanging above the Fed’s head, Zandi said.
“We won’t see the Fed’s cut rates here until we get a better sense of inflation coming back to our target,” he said. “The economy came in 2025 in a pretty good place. It feels like it’s working well. It should survive a lot of storms, but it feels like there are a lot of storms. ”
