Jul 28, 2024 3 min read

DEEP DIVE: The Fed Faces Some Challenges

DEEP DIVE: The Fed Faces Some Challenges

The financial markets and most economists seem to agree that the Fed’s next move will be to cut the federal funds rate (FFR) by 25bps following the September 17-18 meeting of the FOMC. However, there is still a debate about whether restrictive monetary policy operates with a “long and variable” lag, thus requiring more rate cuts this year to avert a recession later this year or in 2025. If the Fed gets too dovish, that could be inflationary in 2025, particularly if President Donald Trump wins a second term in the White House and extends his 2017 tax-cuts beyond 2025 and increases tariffs. That's a known unknown until the November presidential election.

A known known is that the federal deficit will remain on an unsustainable path no matter who is in the White House. Another known unknown is whether and when a debt crisis might result that would force Washington to fix the problem.

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