US Economists Powerless: Economic Predictions Disproved
New and Improved, Man:
Jerome Powell and the Federal Reserve crew once again kept the key interest rate steady — yep, you guessed it, 4.25-4.50% — during the recent FOMC meeting in June. Spoiler alert: pretty much every financial analyst and economist had predicted this move, including the big man himself (Trump). But ol' Donny ain't happy, calling the Fed boss a " dummy" and promising to name a new financier to take over by next year, much sooner than expected.
The frog-faced Fed folks voted unanimously to play it cool with the interest rate. They also shared a new economic forecast, the first one since Trump moved back into the White House. No surprise there, they reckon the US economy will take a hit thanks to the tariffs Trump slapped on in April. Their predicted growth rate has been slashed from 1.7% down to 1.4%, along with a 3% inflation finish line toward the end of the year (previously projected at 2.7%). They also expect joblessness to hit a whopping 4.5% by the end of 2025.
At the press conference post-meeting, Powell repeated his standard spiel about monetary policy and interest rates, despite the White House and Trump's personal pressure to lower the rates faster.
Not everybody's on the same page in the American central bank though. Some serious disagreements exist amongst the members when it comes to their long-term plans. For instance, the number of folks thinking the interest rate doesn't need touching at all this year has grown significantly from 4 in March to 7 as of now. Two more believe a single rate cut by year's end is necessary. The remaining 10 think two rate cuts should be made between now and the end of 2025. Powell advised reporters to not catch feelings about the existing disagreements in FOMC's plans, calling them "just another parking lot to work out."
"Even in this unclear picture, it's hard for anyone to have fixed beliefs about the rate," Powell stated.
Experts drew attention to the absence of any mentions of increasing inflation and unemployment risks in the traditional statement released by FOMC after the meeting, which were present in the previous statement. The statement also highlighted that while the economic picture remains uncertain, it's gradually getting clearer.
Interesting Bits:
- The median projection from FOMC members calls for two quarter-point rate cuts (0.50 percentage points in total) across the remaining four meetings of 2025.
- About 37% of Fed officials anticipate no rate cuts at all this year.
- The uncertainty caused by tariffs and a slowing economy has made the Fed cautious, pushing them to delay rate cuts until they better grasp these factors.
- Inflation has cooled, but the possibility of a resurgence due to tariffs keeps the Fed on its toes, preventing immediate easing.
In light of the economic forecast revised by the Federal Reserve, it's apparent that the ongoing tariff-related issues may have a significant impact on the business sector, potentially leading to a decrease in economic growth and increased unemployment rates. Given the current uncertain economic climate and the conflicting opinions among Federal Reserve members regarding the need for interest rate adjustments, the future of finance could witness a more cautious approach, potentially delaying any significant rate changes.
