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What's next for the Fed?

25 min episode · 2 min read

Episode

25 min

Read time

2 min

Topics

Investing, Science & Discovery, Economics & Policy

AI-Generated Summary

Key Takeaways

  • Fed Rate Trajectory: Economists predict federal funds rate will drop to 2.75-3.25% by December 2026, down from current levels, as inflation moderates and shelter costs gradually align with market rates, though uncertainty around tariffs and growth could force rate reversals.
  • Labor Market Softening: Small businesses show fewer job creations and labor market weakness, particularly significant since October unemployment data was never released due to shutdown. This missing data complicates Fed's dual mandate assessment of maximum employment alongside price stability.
  • Child Care Economics: Average child care costs jumped nearly 30% between 2020-2024. Bank of America data shows households paying for child care declined 1.5% year-over-year, while dual-income households also decreased as families recalculate whether second incomes justify expenses.
  • Bond Market Independence: Historical comparison to 1970s-80s when Fed chairs Burns and Miller yielded to presidential pressure, allowing inflation to reach 13%, required Paul Volcker's severe rate hikes causing double-dip recession. Bond investors demand Fed autonomy to prevent repeating this scenario.

What It Covers

Federal Reserve prepares for December rate decision amid delayed economic data from government shutdown. Bond markets signal concerns about Fed independence. Child care costs rise 30% since 2020, forcing families to reconsider employment decisions.

Key Questions Answered

  • Fed Rate Trajectory: Economists predict federal funds rate will drop to 2.75-3.25% by December 2026, down from current levels, as inflation moderates and shelter costs gradually align with market rates, though uncertainty around tariffs and growth could force rate reversals.
  • Labor Market Softening: Small businesses show fewer job creations and labor market weakness, particularly significant since October unemployment data was never released due to shutdown. This missing data complicates Fed's dual mandate assessment of maximum employment alongside price stability.
  • Child Care Economics: Average child care costs jumped nearly 30% between 2020-2024. Bank of America data shows households paying for child care declined 1.5% year-over-year, while dual-income households also decreased as families recalculate whether second incomes justify expenses.
  • Bond Market Independence: Historical comparison to 1970s-80s when Fed chairs Burns and Miller yielded to presidential pressure, allowing inflation to reach 13%, required Paul Volcker's severe rate hikes causing double-dip recession. Bond investors demand Fed autonomy to prevent repeating this scenario.

Notable Moment

Bond investors directly contacted the White House expressing alarm about potential Fed chair replacements under Trump, fearing loss of central bank independence could trigger inflation spiral similar to the 1970s crisis that required painful economic correction.

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Episode Transcript

This podcast is supported by Odoo. Some say Odoo business management software is like fertilizer for businesses because the simple efficient software promotes growth. Others say Odoo is like a magic beanstalk because it scales with you and is magically affordable. And some describe Odoo's programs for manufacturing, accounting, and more as building blocks for creating a custom software suite. So Odoo is fertilizer, magic beanstalk building blocks for business. Odoo, exactly what businesses need. Sign up at odoo.com. That's odoo.com. This marketplace podcast is supported by Wealth Enhancement who ask, do you have a blueprint for your money? Wealth Enhancement can help you build the right blueprint for investing, retirement, tax, and more. With offices nationwide, there's an advisor who's ready to listen and craft a blueprint for your future. Find out more at wealthenhancement.com/build. Okay. Quick. What's a four letter word that can tell us where this economy is going? From American public media, this is Marketplace. In Los Angeles, I'm Kyle Risdall. It is Thursday today, December 4. Good as it always is to have you along, everybody. The theme of the program today, the first eight or so minutes, is time, t I m e. What is it, really? We begin with the lagging, lagging indicators, think about it, that have been coming to us as federal data plays catch up from the shutdown. The delayed September jobs report, a tardy retail sales release, and then tomorrow, the September, again, September personal consumption expenditures index of intense interest to Fed chair Jay Powell and the gang ahead of their last interest rate setting meeting of the year next Tuesday and Wednesday. You know, we're going into year end, and we're going into the holiday season for so data from September. I don't know about you, but September feels quite a long time ago. Yeah. Sure does. Andrea Eisfeldt, a professor of finance at UCLA Anderson. That said, some some economic trends do tend to be more slow moving. So I think we have seen from several data sources that in particular for smaller businesses, there have been fewer jobs created, and we probably see a bit of a softening in the labor market there. Remember, we talked about small businesses yesterday and their job losses. Labor market softness, of course, is something the Fed is watching as we've been talking about. But the big shadow over all of this is what we don't know. And by that, I mean the releases we are never gonna see, in particularly the unemployment report for October. Nina Ihackers at the University of Rhode Island. If anyone wants to make a case for a cut, having access to that jobs data is extra important in all of this. Go on. The Fed can maybe make more reasonable estimates about the effects of tariffs and whatever on the costs of production, which they're certainly doing. I mean, I think that that's a big part of the uncertainty with the Fed right …

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