{"id":101,"date":"2025-06-02T07:54:48","date_gmt":"2025-06-02T11:54:48","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=101"},"modified":"2025-06-02T07:54:48","modified_gmt":"2025-06-02T11:54:48","slug":"the-feds-next-move-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2025\/06\/02\/the-feds-next-move-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"The Fed\u2019s Next Move \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"<p><em>Originally written on 11\/19\/2024<\/em><\/p>\n<p><span data-contrast=\"auto\">The Federal Reserve is designed to be an independent agency, not beholden to the fiscal impulses of Congress or the Executive branch. It has a tremendous responsibility to stabilize the value of the U.S. dollar. A stable dollar is in the interest of citizens of the United States. Also, since the dollar is still the world\u2019s premiere reserve currency, its stability is central to a prosperous world economy. We have long advocated that the Fed firmly support its target 2% rate for U.S. inflation.\u00a0<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/www.bls.gov\/charts\/consumer-price-index\/consumer-price-index-by-category-line-chart.htm\"><span data-contrast=\"none\">The U.S. inflation rate began rising well above the 2% benchmark in the Spring of 2021 and continued to rise to a peak of 9.1% in June of 2022. The Fed then accelerated its increases of interest rates to a peak of 5.5% in July 2023. The inflation rate declined but remained stubbornly above 3% until July of this year, when it finally dropped below 3%.\u00a0<\/span> <\/a><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The Fed surmised inflation had cooled enough to lower interest rates by half a percentage point in mid-September and another quarter point just after the November election. The Fed\u2019s interest rate now stands at 4.75%.\u00a0<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">But is inflation really tamed to the 2% benchmark? And what should the Fed do next? <\/span> <span data-contrast=\"auto\">Our favorite indicator of future inflation is the <\/span><a href=\"https:\/\/fred.stlouisfed.org\/series\/T5YIE\"><span data-contrast=\"none\">St. Louis Federal Reserve\u2019s 5-Year Breakeven Inflation Rate<\/span><\/a><span data-contrast=\"auto\">. Its inflation prediction is derived from calculating the difference in yields between inflation indexed five-year U.S. bonds and unindexed five-year U.S. bonds. When the Fed chose not to decrease the interest rate at the end of July, the inflation expectations measure dropped from 2.13%\u00a0 to 1.89% in two days&#8211; a market signal suggesting inflation had been tamed. Inflation expectations stayed below 2.02% until the day after the mid-September half-point cut. Since then, it has edged up to 2.39% at the time of this writing.\u00a0<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Why did inflation expectations rise after the cuts? Although monetary policy is designed to be insulated from political pressures,\u00a0 fiscal policy, which is government taxing and spending, also impacts economic outcomes. The Executive and Legislative branches both usually want the Federal Reserve to print the money to finance their schemes, no matter how foolish. Since neither political party was (or is) paying much attention to the unprecedented fiscal imbalance our government faces, it is unsurprising that markets are expecting inflation. We believe there should be no more rate cuts until inflation has definitively declined. The inflation beast must be tamed. <\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Originally written on 11\/19\/2024 The Federal Reserve is designed to be an independent agency, not beholden to the fiscal impulses of Congress or the Executive branch. It has a tremendous responsibility to stabilize the value of the U.S. dollar. A stable dollar is in the interest of citizens of the United States. Also, since the [&hellip;]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[245,1018,98,4,55,269,94,97,1022,1023,1020,248,1021,1019,35],"class_list":["post-101","post","type-post","status-publish","format-standard","hentry","category-inflation","tag-congress","tag-executive-branch","tag-fed","tag-federal-reserve","tag-government","tag-inflation-rate","tag-interest-rates","tag-market","tag-money-printing","tag-rate-cuts","tag-stability","tag-tax","tag-u-s-bonds","tag-u-s-dollar","tag-united-states"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.7 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>The Fed\u2019s Next Move \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/people.bsu.edu\/econbriefs\/2025\/06\/02\/the-feds-next-move-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Fed\u2019s Next Move \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\" \/>\n<meta property=\"og:description\" content=\"Originally written on 11\/19\/2024 The Federal Reserve is designed to be an independent agency, not beholden to the fiscal impulses of Congress or the Executive branch. 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