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"Fed Whisperer" Nick Timiraos Signals the Fed is Worried About a Soft Landing

"Fed Whisperer" Nick Timiraos Signals the Fed is Worried About a Soft Landing

Dec 13, 2023

"Fed Whisperer" Nick Timiraos Signals the Fed is Worried About a Soft Landing

In today's Federal Reserve rate decision, the central bank is anticipated to maintain interest rates at a 22-year peak, signaling a pause in its aggressive rate-hiking campaign. This update comes from Nick Timiraos, the Wall Street Journal's chief economics correspondent and author of "Trillion Dollar Triage."

During his forthcoming press conference at 2:30 p.m. Eastern time, Fed Chairman Jay Powell is expected to address a topic the officials have avoided: the timing of future rate cuts. Despite reluctance to signal a complete win over inflation, market momentum suggests investors are already anticipating rate reductions.

The latest economic projections, to be released by the Fed, are predicted not to show an increase in the peak interest rate, a notable shift from previous meetings. Current projections suggest a lower Federal funds rate by the end of 2024, from its current stance at 5.375%.

In a conversation with Treasury Secretary Janet Yellen at the Wall Street Journal's CEO Council Summit, Yellen expressed optimism about achieving a "soft landing" for the economy, characterized by continued growth, strong labor markets, and declining inflation. She believes there's no inherent reason inflation shouldn't gradually recede to the 2% target and sees no signs of entrenched inflation or wage-price spirals.

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Despite Yellen's confidence, Timiraos noted that achieving a soft landing is not only a matter of skillful policy calibration by the Fed but also involves an element of luck, citing the avoidance of major crises over the past year.

The resilience of the economy, even after eleven rate hikes, remains somewhat puzzling to economists. Questions about the delayed impact of monetary policy tightening and potential upcoming challenges for sectors like corporate debt and commercial real estate are on the horizon for 2024.

A new bank rate survey indicates that 59% of U.S. adults feel the nation is already in a recession, with this sentiment crossing income levels and most pronounced among Gen X and Millennials.

The central question for the markets and for Powell at his press conference is whether the Fed will counter the market expectations of rate cuts, which are currently priced in. The nature of future rate cuts, whether due to recessionary pressures or as a normalization measure in response to falling inflation, will significantly influence economic outlooks.

As the Fed releases its economic projections and Powell takes the stage at 2:30 p.m., investors and analysts alike will be keenly watching for any signs of the Fed's stance on the market's rate cut expectations and the central bank's confidence in the economy's path forward.


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