The Federal Open Market Committee (FOMC) will make its most recent policy announcement on Wednesday. This will occur shortly after European markets close. As Marc Scribner pointed out over at Reason, analysts have long anticipated a seismic shift. The Federal Reserve most certainly should—and will, we expect—cut the federal funds target range by at least 25 basis points. This decision creates a hypocritical backdrop of officials, including current Fed Chair Powell, who have vowed to focus like a hawk on the jobs market.
In recent months, the jobs market has become a new point of emphasis for FOMC officials. At the same time, authorities are understandably eager to do no more than necessary to keep employment strong, especially with inflation still a concern. The Fed is currently balancing two major priorities. It now finds itself under increased pressure to build consensus, particularly regarding the future path of interest rates beyond this month’s meeting.
The new announcement provision is extremely important for the future. Chair Jerome Powell will need to address the “strongly differing” views among the committee, addressing that “wide range” of views. Since September, it’s been a house divided. Two or three hawkish members might even call for a chance of no increase in the rates whatsoever. Such divisions can lead to a more hawkish median dot plot. This would indicate that even though a 2024 rate cut looks almost certain, the committee is only expecting one additional cut, projected by 2026.
The JOLTS jobs report, released earlier this week, did come in above expectations, flummoxing analysts once again, which further complicates what the FOMC has to weigh. Surging inflation puts pressure on officials to crack down while doing so amid a rapidly changing labor market. Chair Powell will have every incentive to tamp down the speculation about a possible cut in January. He should note that although some short-term changes may be called for, we need to be deliberate in the long term.
Meanwhile, the FOMC is preparing for its next policy decision. One thing is evident, the environment of monetary policy is becoming increasingly complicated. The committee’s approach can demonstrate a lasting commitment to nurturing job creation and combating high inflation at the same time. All eyes are on the Fed right now. They are eager to see how it articulates strategies to outmaneuver a labor market in many respects, an environment of economic decoupling.