- Consumers exhausted by price increases
- Companies want to pass costs on, but consumers are trading down and shopping carefully
- Inflation is moving in the wrong direction, but so is unemployment
- Productivity and customer pushback is helping with inflation
- Expect limited increases in unemployment rate
- Downside risks relatively limited for jobs and inflation
- Uncertainty around the economy has started to lift
- The Fed is going to adjust its stance as it learns more
- The neutral rate is not that useful as an operational tool in making policy
- What is more helpful is how the economy is reacting in real time
- Not sure if the Fed will change the policy rate it targets
- Have to be attentive to how little the Fed knows right now about how inflation and unemployment will evolve
Barkin is generally neutral in his stance and he's not a voter until 2027. He's been very data dependent and he's one of those that will likely be uncomfortable in cutting rates further if we get a strong NFP report next week.
Right now, the market is pricing 39 bps of easing by year-end and 101 bps cumulatively by the end of 2026. An October cut looks like unavoidable at this point unless we get very hot NFP and CPI data, but a December cut has high chances of being priced out in the next weeks/months.
