Some FOMC members included estimates of President Trump's mooted Tariff and Immigration policies in their "dot" estimates. One did not. And some didn't say. Some argued that such policies could damage the inflation outlook. Some obviously did not. As a result the forecasts are meaningless as they confuse policy assumptions.
This is the weakness of data-driven central banks. They don't stress test policies or scenarios. They should. After all they ask commercial banks to do so when they conduct Financial Stability Reviews.
The culture of central bank data-driven policy formulation is conducive to myopic, backward-looking, visionless, policy-formulation. The very least central banks should provide is transparency about the future or at least their thinking about it.
Having said that the meeting confirmed less policy rate cuts in the future. We knew that! The only disagreement with this,( I suspect Waller's input): if you take out implied increases in housing costs, the rest of the inflation components, being more observed and therefore more real, point to inflation being already in line with the Fed's target.
What Christopher Waller actually said in his Paris speech on Jan 8 was: (Note 1): " ...inflation in 2024 has largely been driven by increases in imputed prices, such as housing services and nonmarket services, which are estimated rather than directly observed and I consider a less reliable guide to the balance of supply and demand across all goods and services in the economy. These two categories represent about one-third of the core PCE basket. If you look at the prices associated with the other two-thirds of core PCE, they on average increased less than 2 percent over the past 12 months through November. I don’t support ignoring our best measures of prices for housing and non- market services, but I find it notable that imputed prices, rather than observed prices, were driving inflation in 2024 and thus expectations of the policy rate path."
Excluding the impact of policy changes, Mr Waller might well be right. It is policies that will prove him wrong in my view. And on that front the Fed only offers us only confusion.
End
Note 1: Challenges Facing Central Bankers Remarks by Christopher J. Waller Member Board of Governors of the Federal Reserve System at Lectures of the Governor Organization for Economic Cooperation and Development