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Below the Comment on US Fed Policy by Dr. Vikas V. Gupta, CEO & Chief Investment Strategist, OmniScience Capital

Not surprisingly, the Federal Reserve kept the rates unchanged. However, with the core PCE inflation now at 2.8%, closer to their target of 2%, the Fed is focused on estimating the future rate of decrease in core PCE to calibrate their rate cuts.

To do this, the Fed is closely monitoring the unemployment rate and the domestic demand index in the GDP data. They would like to see a significant drop in GDP. Although GDP growth has slowed to 1.3%, the domestic demand index, excluding government spending and corporate investments, remains robust at 2.8%, which is uncomfortably high for the Fed. Additionally, the unemployment rate is at 4%, still lower than the Fed’s comfort level.

The latest projections show the Fed being conservative in its 2024 numbers, projecting current levels into next year. While it is likely that actual numbers at the end of 2024 will be closer to the Fed’s comfort levels, they prefer to take a conservative stance for now. Forecasting rate cuts will depend on actual data.

The economy seems quite robust, and unemployment rates are unlikely to increase significantly. However, as wage increases moderate, inflation should start easing faster, potentially forcing the Fed to cut rates sooner than their dot plot projections suggest."

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