The Fed is fighting real inflation this time – Nordea

Researchers from Nordea are out with a note highlighting that the Fed's (and other central banks') fight with inflation will remain an ongoing task for longer than most might be expecting, with Nordea currently anticipating a lack of any rate cuts until well into 2025.

Major forecasts: Firmly on hold

The central bank has from the onset of this cycle made clear that they do not want to repeat the mistakes of the 70s in easing policy prematurely, so the bar for rate cuts is also very high.

Since the real economy is more sheltered from the direct effects of higher rates than before, the indirect impact from financial conditions becomes more important.

Even at 5.5%, measures such as the Taylor Rule, suggests policy is too loose. We fully understand that the Fed is cautious about raising rates further, wanting to take the time to gauge the effects of past increases.

With the Fed still unsure if they have tightened enough, a lot of things needs to go wrong before they are sure policy needs to be loosened. We believe this will take at least all of next year.