Is the Fed quiet quitting? The central bank is widely expected to cut interest rates tomorrow, despite inflation remaining closer to 3% than the Fed’s long-held (and, for the past four years, missed) target of 2%. Reducing borrowing costs now would risk fueling inflation, and show that the Fed is more concerned about a weakening job market than stubbornly high prices.
“While this will never be formalized or admitted publicly, the Federal Reserve’s inflation target has effectively been raised to 3%,” said Tom Hulick, who manages $1 billion for retirees and institutions. (Jason Furman, a Harvard economist and former Obama economic adviser, first raised the idea of a Fed throwing its hands up on inflation to Semafor back in 2023: “I could see the Fed shifting to 3% without telling anyone, and not actively trying to wring inflation out of the system beyond that.” You’ll remember that quiet quitting was a thing then.)
CME FedWatch puts the odds of a 25 basis point cut at nearly 90%, but there’s also an expectation that the Fed will then pause at that level for some time. Chair Jerome Powell has struggled all year to balance both sides of the Fed’s dual mandate — keep inflation tamped down and boost employment — especially as his colleagues grow more dovish.