In the face of potential supply side shocks, the Federal Reserve may be forced to halt its rate cuts but not reverse its course, a prominent economist predicted.
What Happened: Brian Jacobsen, Chief Economist at Annex Wealth Management, expressed his concerns about the possible risks to the Fed’s policy-easing path during an interview with CNBC on Monday.
Jacobsen pointed out that the Fed’s main challenges stem from their response to supply side effects caused by uncertain geopolitical scenarios. He mentioned that the Fed’s past forecasts failed to properly consider these effects, leading to uncertainty in their response strategy.
“They don’t really know how to respond to supply side shocks,” Jacobsen stated.
“All sorts of supply side shocks could really, I think, send a signal to the FED that maybe they need to take a pause…I don’t think that they will reverse course because they don’t want to overreact to that.”
Jacobsen stressed that the Fed’s primary challenge is managing the supply side, as their focus has traditionally been on the demand side.
Why It Matters: The Fed’s potential pause in rate cuts comes in the wake of recent developments. In August, the minutes from the July Federal Open Market Committee meeting indicated a possible interest rate cut in the upcoming September meeting, driven by ongoing progress in curbing inflation.
Later in the same month, Jerome Powell, the Chair of the Federal Reserve, suggested at a global gathering of policymakers and economists that the U.S. central bank is likely to lower rates in September.
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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari
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