Policy Regime & Directional Outlook:

• Policy Regime: The current Fed policy regime is a risk-managed hold, characterized by a temporary pause within an ongoing easing cycle to assess evolving economic data. (31)
• Near-Term Bias: HOLD with high confidence (70% probability), reflecting a pause for evaluation after recent consecutive rate cuts. (31)
• Medium-Term Bias: Easing bias, with future rate cuts conditional on continued progress towards disinflation and further signs of labor market weakening. (31)
• Key Constraint: Significant internal divergence regarding the balance between persistent inflation concerns and rising downside risks to employment. (31)(7)

Policy Justification:

• Macro Conditions: Disinflationary pressures persist, with the overall Fed Inflation Signal COOL, though core PCE remains sticky above target. The labor market is cooling, showing increasing slack, but elevated systemic financial stress points to underlying fragility. (31)
• Fed Worldview (Projections): The Fed anticipates continued disinflation and stable to accelerating growth, but prioritizes managing "downside growth/labor risk," framing recent cuts as preemptive actions. (2)(4)
• Behavioural Feasibility: Despite a prevailing dovish tone from several speakers and macro conditions justifying a cut, recent consecutive easing actions and explicit internal divisions suggest a near-term hold to assess data and build consensus. (31)(7)
• Real-Economy Signal: The Beige Book confirms broadly unchanged to softening economic activity, cooling labor demand managed by attrition, and moderate, tariff-driven price increases persisting across districts. (1)

Interpretation:

• Upcoming meetings should be interpreted as a data-dependent pause following an initial easing phase. A hold would confirm the Fed's cautious, risk-managed approach amid internal divisions, while any further weakening in labor market conditions or broader disinflation would validate the medium-term dovish bias for subsequent easing. (31)