Should the Fed be forward-looking? Two different takes

The Federal Reserve has announced that it will maintain interest rates at current levels. However, they acknowledged ongoing changes in the labor market. EY chief economist Greg Daco, and Thornburg Investment Management co-head of investments Jeff Klingelhofer join Market Domination to share their perspectives on the Federal Reserve's decision. Daco argues that this is "too shy of a wink" for a potential September rate cut. He believes the Fed is "too data-dependent and backward-looking," advocating for "a forward-looking perspective." Daco points out that the labor market is cooling and inflation is approaching the Fed's 2% target. He states, "We're in the environment that would require the Fed to start recalibrating monetary policy." "If you have a higher-for-longer scenario, where the Fed does not start to ease monetary policy, you're going to start to see a tightening of financial conditions," Daco told Yahoo Finance. Conversely, Klingelhofer contends that "the Fed did exactly what they were supposed to today." While acknowledging that inflation is decreasing, he cautions that "it's not this immaculate disinflation story" because it's accompanied by a weakening economy. Klingelhofer supports the Fed's current stance, stating, "I think the goal of monetary policy is to cushion a cycle but not try to engineer a cycle." When asked about how he believes the AI trade will drive market growth, Klingelhofter states: "AI is very likely to change the world, but it's not gonna change the world today." For more expert insight and the latest market action, click here to watch this full episode of Market Domination. This post was written by Angel Smith