The Fed is as clueless as markets

IN NORMAL times, the conduct of monetary policy is a lot like driving a car through a thick fog of uncertainty. You have a general idea of where you are going, but you want to move slowly to avoid accidents. At the moment, it is more like driving while double blindfolded – in a car with malfunctioning brakes. The most prudent move is to stop.

With its decision on Wednesday (Dec 18), the US Federal Reserve has now cut rates by 100 basis points to 4.25 to 4.5 per cent, appropriate adjustments given the meaningful moderation in inflation from the peaks of 2022. But nobody knows what comes next – and I mean nobody.

The key feature of the Fed’s latest economic projections was the uncertainty surrounding them. The median forecaster on the Fed’s rate-setting committee now projects that inflation progress will slow meaningfully in 2025, and that the central bank will cut rates just two more times by next December.