You have watched as various factions are being created at the Federal Reserve, with some presidents arguing against the most recent cut in the Fed Funds target rate and others arguing for deeper cuts, while another faction makes the case for holding steady while things play out. Two new players made their allegiances known recently.
St. Louis Fed President Alberto Musalem came out for the cautious side. He didn’t explicitly say “no more cuts,” but he argued that there’s “limited room for further reductions without monetary policy becoming overly accommodative.”
Meanwhile, San Francisco Fed President Mary Daly (Janet Yellen’s protégé) has come out for easing faster. She noted low inflation in services and housing, and relatively stable inflation expectations. Daly laid out a pretty extensive blog post on the subject recently, which leans heavily toward the idea that more cuts are necessary, though she hedged her language.
A mixed view from the Fed isn’t unfounded, as the economic data are mixed and Governors and Presidents are focusing on different indicators to form their opinions. For instance, there was improvement in the ADP payroll numbers, giving some Fed officials pause as to whether or not the labor market should be viewed as a greater risk to the economy than inflation at the moment.
Meanwhile, other indicators, like the University of Michigan’s Consumer Sentiment Index, have fallen to levels historically disturbing for the economy.
Action Line: Keep your eye on the economy. Click here to see these charts and many more at Your Survival Guy’s Charting Your Course feature. When you want to talk about your portfolio and the economy, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
