Postpartum Impressions

As expected by everyone, the FOMC delivered a 25bps cut in the federal funds rate (FFR) yesterday. There was only one dissenter among the FOMC's voting members. That happened to be Stephen Miran, who wanted a 50bps cut. President Donald Trump has publicly called for the Federal Reserve to cut the FFR down to 1.00%, describing such a move as "rocket fuel" for the US economy. That would also lower government borrowing costs, allowing the administration to finance the high and rising deficits expected from his spending and tax-cut bill.

In their latest Summary of Economic Projections (released yesterday), FOMC participants indicated that they collectively believe that 3.00% is the "long-run" neutral rate for the FFR (chart). That's 2.00ppts above Trump's wish. It's at least 1.00ppts lower than our 4.00%-4.50% estimate, that is based on the fact that it seems to be working toward achieving the Fed's dual mandate of maximum employment with stable prices without raising the risk of financial instability.