On the June FOMC

We ducked a bullet. The SEP kept the December 2025 “dot plot” pointing to two rate cuts this year, despite raising inflation forecasts for 2025, 2026 and 2027. Tariffs have begun to be collected at scale now for three months, but over those three months inflation has collapsed. Now the tariffs that were initially surprisingly large, have been put on hold and are likely to be overturned in the courts. At this point the Fed is operating on confirmation bias that tariffs are inflationary (when they haven’t been) and for that matter that tariffs will even exist in any significant form. This puts the Fed into cognitive dissonance that it resolves with the theory that inflation expectations will be inflamed by tariffs and become long-lived self-fulfilling prophecies. Yet historical evidence shows that inflation expectations are inversely correlated to future actual inflation.