Trajan

The Fed has, once again, badly misread the cycle. The latest Truflation data shows U.S. inflation running at just 1.67%, far below the Fed’s 2% target and a steep decline from earlier in the year. At the same time, job creation has slowed dramatically, with the three‑month average at only 35K. By most measures, these are conditions seen at the brink of a recession. Yet the Federal Reserve continued to hold the federal funds rate at 4.375%, a level that looks increasingly out of sync with the underlying economic reality. The Fed has badly misread the cycle once again. For months, Powell justified steady rates by pointing to “strength” in the economy and “somewhat elevated” inflation. But with inflation now well below target and labor momentum collapsing, that stance is quickly unraveling. The probability of a rate cut has spiked, with markets nearly fully pricing in easing at the September meeting. The Fed’s credibility is in the air, and the stage is set for a policy reversal that could come faster and harder than most on Wall Street expected.