Fed Funds Rate

The Fed now narrowly expects one rate hike this year. Policy rules point to a peak in the funds rate of about 4½% (previously around 4%).

Warsh has pointed to a less commonly-used measure of inflation that is close to the Fed's target.

The Fed expects inflation will take longer to return to target, with upside risks reflecting recent firmer inflation and Trump policies.

The Fed should forecast fewer rate cuts given firmer inflation, resilient economic growth, and the inflationary impact of Trump policies.

The Fed hopes it can achieve a soft landing, lowering the policy rate to around 3%, broadly matching its estimate of the neutral rate.

Soft landings are exceedingly rare in the US and the 1990s episode marks the only example of a successful soft landing.

The US unemployment rate has edged above most estimates of the NAIRU for the first time since 2021, supporting a Fed rate cut next month.

Measures of new rents are giving conflicting signals on the outlook for housing costs, which are a key driver of inflation.

Market measures of expected inflation have picked up, which is unusual this late in the cycle.

US inflation and wages growth have peaked, but remain uncomfortably high for the Fed.