Inflation Is Going Up So Why Is the Fed Cutting Rates

In today's video, I'm going to show you the five most important video clips, the highlights, so the Federal Reserve FOMC meeting. So the first thing that you need to know is that the Federal Reserve decided to not cut interest rates at this meeting. This was widely expected, so there was no surprise here. The next thing I want to show you is the Federal Reserve's updated projections. So they don't update their projections at every single meeting, so this meeting was a special one. Okay, back in December, the Federal Reserve projected that U.S. economy would grow at a rate of 2.3% in 2026. Now, they revised it upward to 2.4%. Now, currently the unemployment rate is at 4.4%. Back in December, the Federal Reserve projected that we're going to finish the year at an unemployment rate of 4.4%, and they left this projection unchanged. So this means that they expect the labor market to remain stable for the remainder of 2026. Now, if you take a look at their updated projections, the inflation expectations rose. For PCE inflation, we're currently at 2.8%. Back in December, the Fed thought that they could bring it down to 2.4% by the end of the year, and now they're saying 2.7%. Therefore, they expect slower progress bringing down inflation. And of course, you have to remember that their goal is to get it down to 2.0%, which they've actually been saying that for the past five years. Core PCE inflation is at 3.1% right now. They thought back in December that they could bring it down to 2.5% by the end of 2026. Now, they're saying 2.7%. And finally, the Federal Reserve is still projecting one interest rate cut this year in 2026. But I want you to think about that because even though they expect slower progress on bringing down inflation, it didn't affect their interest rate cutting expectations. Now, I want to show you the highlights, the video clips. And the first question is, and I think it's a very good question, how are higher oil prices going to affect your decisions to the Federal Reserve? And you're going to see Paul say a bunch of things, but the biggest takeaway is that, well, you're going to see it. Paul's going to say that, well, we're just going to have to wait and see. So please take a look. Two questions. One, how high would oil prices and broader inflation have to go and for how long for the committee to consider hiking rates? And then secondly, diesel prices are rising faster than gas prices. How concerned are you that the increase in diesel might drive up food and goods prices and lead to broader inflation? I'm not going to give you an example or specific answer on the first question. We're prepared to do what needs to be done, but I wouldn't want to hypothesize about what that might be. In terms of diesel prices, so your question there is, are we concerned about it? I mean- How concerned and whether or not it will drive up the cost of food and other goods that really rely on it to- I think it's a more general concern than that. It's diesel prices because that's transportation of food and things like that. There are just lots of ways that oil and derivatives of oil get into the production and transportation of many, many things. There are big effects in headline inflation, but things like that leak into core as well. The effects may not be as big, but they're quite real in their material. So we are aware of that and we're watching it, but we're right at the beginning of this and we just don't know how big this will be and how long it lasts. It may or may not be something that really makes a big imprint on the US economy. We're just going to have to wait and see. Okay. After watching that, a good follow-up question is, okay, well, is the Federal Reserve just going to ignore higher oil prices then? You're going to see what Powell says, but he essentially says that they're going to be focusing on the progress of goods inflation. So please take a look. Thank you. Colby Smith of the New York Times. There's been some debate about whether the Fed should look through the inflation that will come from higher oil prices stemming from the Middle East conflict. Is that the right approach at this juncture? And to what extent does the fact that inflation has been above target for roughly five years now influence the committee's thinking around this? So first, let me say we're well aware of the performance of inflation over the last few years and how a series of shocks have interrupted progress that we've made over time. And that happened most recently with tariffs. And now there will be some effects on inflation coming forward. The thing that's really important that we see this year is progress on inflation through a reduction in goods inflation as the one-time effects on prices of tariffs go through the system, go through the economy. That's the main thing we're looking for going into this exercise. And we need to be seeing that to, you know, to sort of understand that we actually are making progress because on net we didn't make progress. And if you look at total inflation, sorry, total core inflation, it's about 3%. And some big chunk of that between a half and three quarters is actually tariffs. So we're looking for progress on that. The question of whether we look through the energy inflation doesn't really arise until we have kind of checked that box. It, of course, is kind of standard learning that you look through energy shocks, but that's always been dependent on inflation expectations remaining well anchored. And I think now it's also dependent on what you mentioned, which is that broader context of five years now of inflation above target. We have to keep all of those things in mind. And the question of looking through when it does arise will be one to approach not lightly, but, you know, in the context that you mentioned. Now, here's a very good question. Why are you still going to cut interest rates in 2026 if the inflation expectations are higher? Like you're going to make much slower progress on inflation than what's a justification for cutting interest rates? So you're going to hear what Powell says, but in a nutshell, he says that with the tariffs going away and an improving economy, that's going to afford them to cut interest rates. But you know what? I mean, to me, honestly, that doesn't make any sense because if the economy is going to improve, that's reasons to raise interest rates, not cut them. But whatever, please take a look. And just on the S&P, can you help us make sense of why there is still a bias to cut for most officials this year, despite the upward revision to headline and core inflation, and the essentially unchanged forecast for growth and unemployment? I'm just curious kind of what's the genesis behind the need for the cut? Yeah. So there are 19 people and so 19 reasons, 19 individual submissions. And if you notice, the median didn't change, but there was actually some movement toward, a meaningful amount of movement toward fewer cuts by people. So four or five people went from two to one, let's say, two cuts to one cut. And each person has individual stories behind what they want to do. But essentially, it is that the forecast is that we will be making progress on inflation, not as much as we had hoped, but some progress on inflation. It should come, as we start to see in the middle of the year, progress on tariffs, going through once and then tariff inflation coming down. We should be seeing that. And the rate forecast is conditional on the performance of the economy. So if we don't see that progress, then you won't see the right cut. Now, here's a very good question. Is a weakening labor market a greater risk than inflation? Because you have to remember that the Federal Reserve has a dual mandate. And you're going to see policy know, even though jobs are being lost right now, that the unemployment rates is the most important stats and that's holding steady. But honestly, okay, so what's really going on here is they want to know, like the reporters want to know, are you going to use the labor markets, like a weakening labor market as an excuse to cut interest rates, even if inflation is still running hot? That's what they're really trying to get at. So please take a look. Thanks, Shaquille. Edward Lawrence with Fox Business. So in December, we saw employment numbers revised down to negative 17,000. January, revised down. February, posted a loss of 92,000. Is the employment side a far greater risk than the inflation side? Because we are seeing inflation, CPI is close to 2%. PCE has ticked down overall. I wouldn't say that. I wouldn't say that that's clear at all, that one is more at risk than the other. So you can point to the unemployment rate being stable. And in a world where both supply and demand for workers have come down very, very sharply over the course of the past year due to immigration policy largely, a ratio is going to be a better thing to look at than job creation, for example. And the ratio is the unemployment rate and it's been stable since September. So that tells you that. Inflation, we're at 3.0% core, inflation 2.8% headline. So we've been well above the 2%, that amount, whatever it is, 0.7, 0.8, we're a full percentage point above 2% for some time. And that's a concern. We need to get back to 2%. And we need to keep focused on that, even though we do now face some new inflation from energy. So I'd be hard pressed to say that one of them is obviously more at risk than the other. Now, in this video clip, the question is, how are you thinking about the next meeting in light of all the current events that's going on? So please take a look. I just wanted to ask for purposes of the next meeting, how the Middle East war develops between now and then, how are you thinking about what might guide action at your next meeting? If we have oil prices above $100 a barrel the entire time until the next meeting, is that going to change your wait and see stance? What would lead you all to move or you want to hold pretty indefinitely? We'll have to wait and see. We always say we're going to learn more by the next meeting. And usually we do. But in this case, we're going to learn a lot because we're going to learn six weeks to the day until the next meeting. And we're going to see what happens. It's going to be very important for the way the economy looks and the way the outlook evolves with what happens in the Middle East. That's going to be a big factor. And we'll know that then. I don't know how it's going to affect our thinking. I really don't. We did talk about alternative scenarios a little bit, but I wouldn't bring that in here. It's very uncertain. And I just want to just remember that we don't know. And we shouldn't assume it's going to be one thing or another. We're going to see. Okay. I want to conclude with this. The next Federal Reserve meeting is going to be on April 29th. And that's going to be Jay Powell's last meeting as chair of the Federal Reserve, unless the new Fed chair doesn't get put in place in time. And there's a 95.9% chance that the Federal Reserve will not cut interest rates in April. And there's a 4.1% chance that the Federal Reserve will raise interest rates. So basically, a rate cut is off the table for the next meeting. With that being said, you are now up to date with the Federal Reserve's monetary policy. I hope that was helpful. Please subscribe. Thank you for the support. And I wish you a very nice day. Take care.