Analyst: Fed's hawkish turn dangerous for economy

The Fed's tone reportedly became more hawkish last week. It expects inflation in 2025 to be higher than previously forecast and reduced the number of rate cuts it expects to make next year.

Neil Datta, an analyst at Fuxing Macro, writes that in an economic environment that appears to be slowing down, the Fed could be put in an unfavourable position and subsequently revert to a more dovish stance. He suspects that anticipation of Trump administration policies - which Powell admits some Fed officials are now factoring in - will lead to changes in next year's forecasts, with the Fed ‘appearing to be taking precautions by slowing the pace of rate cuts for the potential tariff shocks.’ Datta writes: ‘Given that the potential momentum of the economy appears to have waned, this [approach] is dangerous.’