The economic data doesn't support an aggressive move down by the Fed, says Roger Ferguson
Youtube·2026-02-12 15:28

Federal Reserve Policy Insights - The Federal Reserve has been cutting rates, but the ten-year bond yields have remained relatively stable, indicating market expectations are not fully aligned with Fed actions [1][2] - Market pricing suggests expectations for two rate cuts this year, with a new chair likely to implement these cuts, although the overall economic data does not strongly support aggressive rate reductions [3][4] Economic Data and Labor Market - Recent labor market data shows stability, with unemployment rates decreasing to 4.3% and robust job creation primarily in the private sector, suggesting a wait-and-see approach from policymakers rather than aggressive cuts [5][12] - The labor market's recovery may lead to consumers being in a better financial position, which could delay disinflationary pressures that the Fed hopes to see [10][21] Inflation and Consumer Behavior - Inflation expectations have remained sticky, and the Fed's previous low-rate policies during the pandemic may have contributed to current inflation levels [6][7] - The wealth effect from rising equity markets and home values has benefited higher net worth individuals, while government stimulus during the pandemic has also played a role in consumer financial health [8][9] Future Rate Cut Expectations - There is skepticism regarding the potential for aggressive rate cuts under the new chair, with historical context suggesting that the Fed may refrain from significant cuts even in the face of productivity booms [11][14] - The market's expectation for a June rate cut has dropped below 50%, indicating a shift in sentiment following recent labor market data [17][18] Technological Impact on Labor Market - The discussion around AI and job losses raises questions about the Fed's ability to influence labor demand, as changes in the labor market equilibrium may not be effectively addressed through rate cuts [20][21] - The complexity of the relationship between productivity, inflation, and interest rates suggests that the Fed's policy decisions will need to be carefully considered in light of these dynamics [23]

The economic data doesn't support an aggressive move down by the Fed, says Roger Ferguson - Reportify