FOMC Preview: Paradoxes Mean Probable Policy Paralysis

Inflation as we measure it is below target, but arguably accelerating in the short term. Unemployment is very low, but higher than it has been for two years. Growth is strong, but less strong than H2-2023. Financial conditions have eased from their worst, but tightened from their best. We think the Fed will process all this as a balance of risks and make no substantive change to policy or guidance. Evidence is strong that the neutral rate is higher than during the post-GFC era of “secular stagnation,” and we wouldn’t be surprised to see the “longer-run” dot moved up from 2-1/2% where it has been for more than five years. There will be a discussion of principles for ending balance sheet run-off, but little in the way of specific timing. This should not be a market-moving FOMC.