US | Fed likely remains confident enough to keep cutting rates at a 25bp pace

Summary

Although they will continue to formally stay out of the debate around Trump 2.0, it is likely that several FOMC participants have begun to incorporate into their thinking some of the obvious effects of potential trade, fiscal and immigration policies.

Key points

• Key points:
• Economic activity continues to exhibit signs of strength, with consumer spending being a key driver of growth despite transitory shocks faced by the industrial sector.
• Employment data painted a mixed picture of a likely already balanced labor market: both jobs and wage growth remain healthy, but the unemployment rate edged up slightly.
• The disappointing inflation data from recent months is likely suggesting just a temporary halt of significant disinflation progress rather than a resurgence of inflationary pressures.
• The Fed’s tone will remain cautious as long as inflation remains above 2%, but a pause in the rate-cutting cycle this week seems hardly justified.
• All eyes will be on the updated “dot plot” and SEP, which could give us an idea of ​​how the Trump 2.0 scenario is influencing the thinking of Fed members.

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