Fed should cut rates 100bps in the months immediately ahead, says Georgetown's Paul McCulley

Core Viewpoint - The Federal Reserve (Fed) is expected to cut interest rates by 100 basis points in the near future, aligning with market expectations and macroeconomic conditions [2][5][11]. Macroeconomic Perspective - There has been a softening in the labor market, indicating downside risks, which suggests that the Fed should adopt a neutral stance rather than a restrictive one [4]. - The Treasury and silver markets have already priced in a 3% policy rate, necessitating the Fed to validate this expectation to maintain easier financial conditions [5]. Interest Rate Strategy - The Fed should implement a gradual approach to rate cuts, potentially reducing rates by 25 basis points at each of the next three or four Federal Open Market Committee (FOMC) meetings [8][9]. - A steady approach is preferred to avoid creating negative market psychology or exacerbating bubble risks [9]. Inflation Concerns - There is a belief that the effects of tariffs on inflation have not fully materialized, with about 50% of respondents in a survey acknowledging this [10]. - The potential for inflation to arise from corporations passing on costs to consumers is acknowledged, but the focus is on the downside risks to economic activity, particularly consumer spending among lower-income groups [14].