Data dependent Data dependent\images\insights\video\chart-analyst-pointing-small.jpg February 29 2024 February 29 2024

Data dependent

The Fed will look closely at inflation numbers before making any cuts.

Published February 29 2024
My Content
Video Transcript
Question: What will it take for the Fed to cut rates?
Karen Manna: The Fed has told us time and time again that they are data dependent, and it will be the data that comes in line with their principles and that gives them the confidence to reduce rates. The data will lead them to their conclusion, but it also creates a market that is data dependent, so we're seeing strong reactions in the treasury bond market as different data elements are reported. So the Fed will look for inflation to come down. They tend to look less at CPI, which is what the market focuses on, and more on PCE because that's the actual prices that are in the economy on the goods. They've also told us in recent days and weeks that they will be focusing more on inflation for services, so taking apart, or disaggregating, the inflation numbers so it's not just the whole. Because they think that prices on goods inflation, or inflation on goods, has come down rapidly, and that perhaps inflation on services has been a bit stickier. The reason for that is that the supply chain has come and healed a little bit more quickly than they had anticipated. Supply chains have less of an impact on the service economy, that's more related to labor. So they're going to look very closely to see if the service economy is also cooling and that they can see sustained reduction of inflation.
Tags Fixed Income . Interest Rates . Markets/Economy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

Consumer Price Index (CPI): A measure of inflation at the retail level.

The Personal Consumption Expenditure Index: A measure of consumer inflation at the retail level that takes into account changes in consumption patterns due to price changes.

Past performance is no guarantee of future results.

Federated Advisory Services Company