The U.S. Federal Reserve sidelined a March interest rate cut, hailing strong economic growth, discarding concerns about the risk of growth-led inflation and casting doubt on a series of data, including January's record unemployment rate, for the year's forecast. Questions are being raised about whether an interest rate cut is necessary. In a related interview, Philip Kolmar, global macro strategist at MRB Partners, said that even though the Federal Reserve maintained interest rates on January 31 and made only a slight reference to March, an interest rate cut was not justified and a policy mistake that could result in inflation in the mid-term. described as a possibility. For this reason, considering recent economic conditions and data such as the strong January unemployment rate, the current Federal Reserve policy may be viewed as restrictive rather than proactive.

Inflation outcomes could be affected by "major pandemic distortions over the next few months," but with "underlying trends anchored above forecasts," Kolmar said, "this will actually close the window on how the Fed might cut rates significantly." said. He expects the Fed to make three cuts, and the market is expected to disagree with the price of five to six cuts this year as of now. As such, after the upcoming general election, the economy will be fascinated by these cuts and talk about their implications. I expected that.

Kolmar's concern is that surging economic growth is giving new life to inflation. After January's monthly payrolls report was released, the economy added 353,000 new jobs in January, down from 333,000 the previous month and beating economists' expectations of 187,000 new jobs. Monthly wage growth also increased at a 0.6% pace, double the 0.3% estimate. Accordingly, Derek Holt, Vice President and Chief of Capital Markets and Economics at Scotia Bank, argued, “If this trend continues, the possibility of an increase cannot be ruled out.”

But is a ‘maintenance cut’ necessary to keep real interest rates limited? But others believe that if prices continue to rise, real interest rates, which are adjusted for inflation and reflect the true cost of borrowing, may become too restrictive and could lead to a sharp decline in the economy. Morgan Stanley first predicted a cut in June, saying: "As inflation declines, real interest rates will increase only limitedly, and we will likely get an agreement to make it easier to recognize this."

“We expect very limited increases in real interest rates as inflation declines, so we expect to include NTR data that will require participants to acknowledge that the economy is not doing well in March when we update their economic projections,” he said. “We will update our inflation forecast at our next meeting... we think it could be lower given the data we have received,” Powell said at an FOMC news conference on January 31. Morgan Stanley believes the statement "expects to incorporate upcoming inflation and NTR data into forecast adjustments."

Not only is the Financial Services Commission holding on to interest rates due to relatively strong economic growth due to concerns about inflation, but it also believes that strong economic and labor market growth can exist simultaneously. "We certainly see strong growth. We don't see this as a problem. We want to see strong growth at this point in time. We don't want to look for a weak labor market," Powell said after the FOMC meeting on January 31. He said at a press conference. This change in message from the Federal Reserve puzzled many. Derek Holt added: "There's no good explanation for why we're sounding dismissive about GDP growth at this time."

All roads lead to cuts... or even stronger economic growth? “In fact, we expect the economy to weaken enough that this will cause enough weakness in the labor market to put pressure on wages,” Kolmar said. “Higher participation in the labor market may not do much to suppress wages.” “There is,” he added. “Small businesses, which employ the majority of the population, are showing you several important things. That is that inflation is a problem when small businesses plan to raise fair prices. Small businesses actually raise their selling prices and adjust wages upward or compensate for employment. “They are planning to adjust the rate upward, which is not good for the Fed,” he said. However, for the Federal Reserve, which relies on data, if the data rises, worries about the Porter Star-level growth seen in November may return.

“If first-quarter GDP tracking continues, the strange consideration could return to Palau, who said at a press conference in November,” he said. “It may be necessary to some extent,” Derek Holt added.