The Federal Reserve might be forced to hit the brakes on its planned rate cuts, but not completely reverse course, according to Brian Jacobsen, Chief Economist at Annex Wealth Management. Jacobsen voiced his concerns about potential supply side shocks that could derail the Fed’s policy-easing path.
He emphasized the Fed’s struggle in navigating these supply-side challenges, which are primarily driven by unpredictable geopolitical situations. Jacobsen highlighted that past Fed forecasts failed to adequately account for these supply-side impacts, creating uncertainty in their response strategy.
“They don’t really know how to respond to supply side shocks,” Jacobsen stated. “All sorts of supply side shocks could really, I think, send a signal to the FED that maybe they need to take a pause…I don’t think that they will reverse course because they don’t want to overreact to that.”
The Fed’s primary focus has historically been on managing demand, leaving them less prepared to handle supply side issues. This potential pause in rate cuts follows recent developments, including the July Federal Open Market Committee (FOMC) minutes suggesting a possible interest rate cut in September, driven by progress in tackling inflation.
Later in August, Jerome Powell, Chair of the Federal Reserve, hinted at a rate cut in September during a gathering of policymakers and economists. The Fed’s decision to potentially pause rate cuts will be closely watched by investors and economists, as it reflects the ongoing challenges facing the global economy.
