Discussion
The headline from FRB Cleveland President Mester’s interview today was that “three rate cuts makes sense.” What was missing from that headline was critical context: Mester went to great lengths in response to the question about cuts circa minute 8:15 of the video below to say that rate cuts are dependent upon the economy evolving as the Fed anticipates. As FRB NY President John Williams outlined tonight, what the Fed is looking for is 1.5% real GDP growth and a 4% unemployment rate.
Does this economy look really anywhere close to a 1.5% growth + 4% UR economy right now?
The March 12 CPI report is a critical juncture in financial markets. If that report confirms the reacceleration of inflation very obviously underway, I suspect the FED narrative will more overtly shift to putting hikes back on the table via “we’re prepared to hike again if necessary.”