Are Rate Cuts Wise Right Now? | Thomas Hoenig, Former Fed Exec

He thinks the Fed needs to be *very* careful in how it conducts them

Last week in his much-anticipated speech at Jackson Hole, Federal Reserve Chairman Jerome Powell announced the "time has come for policy to adjust".

World markets now have a 100% probability expectation that the Federal Funds Rate will be cut at the upcoming September meeting.

In the words of Nick Timiraos, chief economist for the Wall Street Journal and suspected media mouthpiece for the Federal Reserve, "The Powell pivot is complete".

Is that indeed the case?

And if so, what should we expect from here in terms of the speed and depth of rate cuts?

What will the expected impacts be on the economy?

And which ones will be felt sooner, and which perhaps not for quarters from now?

And lastly, is this the correct policy move the Fed should be pursuing now?

For a true expert's informed perspective on these very important questions, we have the great privilege today of speaking with Dr Thomas Hoenig, former CEO of the Kansas City Fed, former voting member of the Federal Open Market Committee, a former director of the FDIC, and now a Distinguished Senior Fellow at the Mercatus Center.

Dr Hoenig feels the Fed needs to be *very* cautious in how it both communicates & conducts any rate cuts from here.

To find out why, click here or on the video below:

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Adam’s Notes: Thomas Hoenig (recorded 8.26.24)

EXECUTIVE SUMMARY

• The Jackson Hole Conference centered on the transmission mechanism of monetary policy and its interconnection with fiscal policy. This year's discussions highlighted the increasing academic and policy-level integration of these two areas, signaling a shift towards a more comprehensive approach to managing economic stability.

• Chairman Powell indicated confidence that inflation is moving towards the Fed's 2% target, leading to a strong likelihood of rate cuts in the upcoming Federal Reserve meeting. However, the specifics of how deep the cuts will be and whether additional cuts will follow remain ambiguous, leaving room for market speculation.

• The reliability of economic data is questionable, particularly in the aftermath of COVID-19, which has created significant uncertainties. This challenge complicates the Fed's decision-making process, as historical data inaccuracies have led to issues such as being "behind the curve" in policy adjustments.

• The Fed's forward guidance strategy, which aims to manage market expectations, has inadvertently led to increased speculation, potentially exacerbating inflation. Dr. Hoenig warns that while a rate cut is likely, the Fed must be cautious in its messaging to avoid signaling a series of cuts that could destabilize the economy by reigniting inflation.

• Dr. Hoenig stresses the critical need for the Federal Reserve to