Fed-O-Meter

Our Fed-O-Meter gives you a monthly snapshot of where we see the Fed moving on monetary policy. Dive deeper by reviewing the numbers behind the needle and our summary analysis below.

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Higher Chance of
More Conservative
Fed Policy
Higher Chance of
More Aggressive
Fed Policy
Research & Insights Fed-O-Meter

Summary Analysis

The economic expansion has advanced from the initial recovery, and the focus is now on metrics the Federal Reserve is looking at to gauge the health of the economy. Since the Fed’s dual mandate is to keep prices stable and maximize employment, we will focus on labor and inflation metrics, keeping in mind the broader economic impact as well. We created a Fed Monitor to track some of the data points that will impact the Fed’s decisions to tighten financial conditions. Additionally, we try to quantify the data and information outside of the dashboard to determine if the Fed is being more dovish than the data, and likely to be more aggressive in the future, or if they are being hawkish relative to the data, and likely to be more conservative in the future.

We are approaching a critical juncture for monetary policy. The Federal Reserve (Fed) signaled three 2024 rate cuts in December. When rate cuts begin this year is less certain. The Fed, as expected, held rates steady at 5.25% to 5.5% for the fourth straight meeting in January, and Fed Chair Jerome Powell said that a March rate cut was unlikely. It is now nearly certain that we won’t see a rate cut in March after the release of January’s hotter than expected CPI inflation report. Early in the year there was a large disconnect between the Fed and markets regarding how aggressively rates will be cut in 2024. In mid-January, the futures market was pricing seven rate cuts, well ahead of the Fed’s projection of three. The futures market has tempered 2024 rate cut expectations to four.

Strong economic growth and healthy labor market dynamics are providing the Fed the opportunity to be a little more patient with rate cuts. The economy grew much faster than expected in the second half of 2023. The unemployment rate is 3.7%, while nonfarm payroll growth climbed above 300,000 per month in December and January. The overall trend for inflation is slowing, though the pace of easing is also slowing. Headline CPI inflation increased 3.1% year-over-year in January. Inflation was above the expected 2.9% increase, but a slowdown from December’s 3.4% annual increase and the 6.4% annual increase from 12 months ago. Core CPI, on the other hand, held steady at 3.9% year-over-year. The Fed’s preferred inflation gauge is core PCE. It’s up 2.9% year-over-year, and just 1.9% annualized over the last six months. Chair Powell stated that better data isn’t needed for the Fed to cut rates. They just want to see more good data.

Although a March rate cut is extremely unlikely, the probability of a rate cut at the following FOMC meeting in May is around 40%. The odds climb to 80% in June. The Fed is holding rates steady, but the odds currently favor an interest rate cut next quarter. We are maintaining the Fed-O-Meter in the current position for now.