As you can see in this table above, coming out of their September meeting, they saw the Fed funds rate significantly lower by the end of 2025 (highlighted in yellow). The 3.4% level would be 125 basis points lower than the current level.
Since then, as we've discussed, the Trump agenda seems to be influencing the Fed's growth and inflation outlook (higher) — as it did in the weeks following the 2016 election.
Add to that, they've already underestimated 2024 GDP growth by what looks like a full percentage point, just like they did in 2023.
There's $3 trillion of excess money still sloshing around the economy (i.e. persistent above trend money supply) and the government is still running crisis-level deficit spending — yet the growth impact is all somehow miscalculated by the Fed.
And then we are in the early stages of a technology revolution, which may be the most productivity enhancing technological advancement of our lifetime. Productivity growth is a driver of the long-term growth potential of the economy — (that's higher growth, without stoking inflation).
With all of this, if you take a look at the orange highlighted number in the table above, the Fed sees long-run GDP growth at only 1.8%.
What is the long-term average growth of the economy? Much higher.
Let's talk about some "new news" that could impact the inflation outlook …
We've been looking at this chart throughout the inflation cycle …
As you can see, Chinese producer prices led U.S. consumer prices on the way up (and global price pressures), and have led on the way down. They just reported the 26th consecutive year-over-year deflation in producer prices.
And overnight, for the second time in three months there is news of stimulus to come out of China.
The September announcement gave Chinese markets a jolt, said to be the most aggressive monetary stimulus since the pandemic, which included direct support for the stock market.
This time, it's said to be the biggest monetary policy support since 2010 (depths of the Global Financial Crisis).
What did China do with freshly printed yuan back in 2010? They stockpiled global commodities.
