Former Fed Official Dudley Lists Four Reasons for Fed’s Inaction

BlockBeats News, April 21st: Former New York Fed President Bill Dudley recently wrote that the current market pricing implies that the Federal Reserve will cut interest rates at the June monetary policy meeting, with the futures market expecting a 75 to 100 basis point rate cut by the end of the year. However, last week, Powell rejected these expectations. Powell's move has four main reasons:

First, the economic outlook is unusually uncertain. The rapid escalation of U.S. tariffs far exceeds Fed officials' expectations, and there is no historical precedent to follow.

Second, the sudden and significant drop in U.S. growth potential.

Third, inflation may exceed the 2% target for the fifth consecutive year, and "inflation is extremely sensitive to Fed's own actions," which limits the Fed's room to address economic weakness.

Fourth, Trump's attack on the Fed's independence has intensified the need for patience. If a rate cut is seen as succumbing to pressure from the White House, public confidence in the central bank's inflation control will be damaged, thereby raising inflation expectations. Trump's pressure not only enhances the Fed's motivation to wait but also increases market concerns about the consequences of the end of central bank independence on inflation. If the Fed cuts rates this year, the market may question whether this is due to changes in economic prospects or administrative pressure.

The article points out that if the employment situation deteriorates sharply - especially if the unemployment rate exceeds the 4.5% SAM rule threshold, the Fed may take aggressive action, and a 25-basis-point conventional rate cut will be futile. (Jin10)