The Fed isn’t following its own communications policy: Economist

The US is on track for another quarter of growth after the Federal Reserve cut interest rates for the first time in four years. Andy Levin, Dartmouth College economics professor and former Federal Reserve Board special adviser, joins Market Domination to discuss how the Fed’s rate easing cycle will impact the economy.

Levin argues that the Fed has was “not following its own communication policies” when it initiated a 50-basis-point cut. “Chair Powell gave a major talk at Jackson Hole in late August. It seemed like the Fed was prepared to go kind of steadily measured pace in easing policy over the coming months. For reasons that remain unclear, the Wall Street Journal reported a few days before their meeting during the blackout period that the Fed was likely to move much more rapidly,” he explains.

Levin disagrees with the Fed’s belief that inflation has moderated and the focus should now be on the labor market. He notes that jobless claims remain low, and argues he sees no elevated risk of recession. However, he doesn’t believe the fight against inflation is over: “There’s a real danger here of declaring mission accomplished on the inflation side when the… underlying measures of inflation are still well above the 2% target that the Fed’s been committed to.”

As the Fed weighs the size and cadence of its upcoming rate cuts, Levin believes the central bank should adopt a “clear strategy and explain it to markets.” He adds, “I often make the comparison to the Fed as a team of physicians, and the economy is the patient and the markets are the patient’s family. And it’s critical for the team of physicians, and Chair Powell is the head physician, to explain clearly to the public and to the markets and to Congress, which is the Fed’s boss, here’s what we see. Here’s how we’re planning to move.”

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This post was written by Melanie Riehl