March 25, 2025
The Federal Reserve’s Open Market Committee met last week and as expected, they did not lower or raise their benchmark interest rate. Despite evidence of a softening of the economic climate, they choose to sit back and wait to see what the effects will be as certain new policies are implemented by the Administration. There certainly has been a whirlwind of activity emanating from the government sector and while everyone is hoping for a positive economic response, the markets have shown more anxiety than anything as of this time.
So, what would it take for the Fed to come in and make such a move? If the economy slowed down enough to threaten a recession, one would think we would see actions to lower interest rates further. On the other hand, if these policies cause a regeneration of inflationary pressures, we could actually see the Fed raise interest rates from their present levels. The real concern is an economic slowdown accompanied by inflation, which is known as stagflation, which would put the Fed in a quandary.
Certainly, it is too early in the game to predict any of these scenarios, which is why the Fed has decided to adopt their wait and see attitude. The initial reaction of the markets is often not indicative of long-term trends. The markets often react to change negatively. On the other hand, there are plenty of times that the markets reactions are on point and thus we should not ignore the messages being displayed. What we can say is that this year is starting out with a lot of fireworks, and it looks like we could be in for quite a wild ride. Fasten your seatbelts.
Source: origination pro
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