The latest Federal Reserve board meeting left interest rates unchanged, but there’s a subtle shift in its monetary policy Vince Malanga, Pro Farmer economic consultant and president of LaSalle Economics, says should be noted.
“It’s back to the dual mandate,” he says. “It was all about inflation. Now with inflation coming down, they’ll start to watch the economy carefully.”
With the next Federal Reserve board meeting not until the end of July, Malenga says there’s a lot of data to come out between now and then that will inform and drive any potential rate cut.
“There’s a 25% chance that they could cut the rate in July, but I think regardless, we’re going to see at least two, maybe three rate cuts before the end of the year,” Malanga says.
The indicators he says are most influential are labor market data and personal consumption expenditures price index.
Jobless claims are tracked and reported weekly. The Bureau of Economic Analysis will release two updates to its price index before the end of July.
“If there’s an easing in labor market conditions, that would encourage them, especially in front of the election to cut rates, even if the inflation target is not met,” he says. “If the unemployment situation is softening, especially three or four months before an election, I think you’re going to start to hear some people yelling at the Fed, that they’ve overdone it.”
Malanga says we are in an affordability crisis, especially for first-time home buyers. And while the housing market was previously a leading indicator, that is no longer the case.
“The affordability issue (home loans, vehicles, etc) is a major constraint on the economy. There’s not much that they can do about that in the short run, but it’s clearly showing up in the data. You’re starting to see a trend toward weakness in consumption.”
Hear the full interview with Malanga from AgriTalk
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