The Fed relies on caution: Interest rate adjustments with prudence

The U.S. Federal Reserve aims for a more cautious approach in tackling inflation and adjusting interest rates for the year 2025, as Fed Chairman Jerome Powell stated at a press conference. This announcement followed the central bank's recent 25 basis point rate cut. Tom Porcelli, Chief Economist at PGIM Fixed Income, emphasized that Powell's statements largely met the majority's expectations. Nevertheless, the news led to massive sell-offs in the stock markets. Porcelli points out that the Fed's challenge lies in its description of itself as "data-dependent." However, he argues that the Fed is actually influenced by individual data points. In a conversation with hosts Seana Smith and Brad Smith, Porcelli describes how the Federal Reserve incorporates economic data, such as monthly employment figures, into its forecasts. He sees the Fed's current problem in narrative formation and emphasizes that it is a particularly volatile data situation. Porcelli also comments on the Fed's inflation forecast for 2025 and the bond market's reaction.