With this lede, I know my readers are thrilled we are going down the exciting macroeconomic rollercoaster again! All the M1 money supply thrills! The monetary policy chills! This week we all held our breath for the Fed to spill the forecast tea.
Well, at least I did.
The Federal Open Market Committee of the Federal Reserve on Wednesday declined for the fourth straight time to cut interest rates, leaving the federal fund rate at roughly 4.3 percent. The FOMC is primarily focused on managing inflation and maximizing employment.
I know, it seems like they did exactly nothing again. Don’t worry, there is more to the story, and I am here to provide color and drama.
The benchmark inflation rate for the Fed is 2 percent. When we reach that rate, interest rate cuts become likely.
The Fed is anticipating a 3 percent inflation rate for 2025 combined with a drop in GDP growth, recently lowered from 1.7 percent to 1.4 percent. That is a different effect than the inflation we experienced in 2021-2022. Our GDP growth then was increasing, not decreasing. When growth declines and prices are rising above the 2 percent benchmark, it is called “stagflation,” and it is something Americans have not seen in five decades.
It’s easy to blame much of the state of the 2025 economy on tariffs. Warren Buffett, who is everyone’s favorite uncle/billionaire/financial whisperer, has spoken eloquently on behalf of free trade since tariffs became a favored tool of both the Trump and Biden administrations after 2018.
“A world that adjusts to something very close to free trade … more people will live better than in a world with significant tariffs and shifting tariffs over time,” Buffett said in 2019.
I stand with Uncle Warren. Yet tariffs are not entirely to blame for the gentle stagflation we seem to be easing into.
Stagflation is one of the worst-case scenarios. It is not a single administration’s fault. The economy was made increasingly fragile throughout this century by ridiculously low interest rates which fueled cheap debt and caused minor collateral problems such as the 2008 recession ignited by the mortgage crisis and the 2021-2022 inflation spike fueled by the pandemic. Republican and Democrat administrations both supported low – close to zero - Fed funding rates. European and British central banks followed similar models.
Euro Pacific Asset Management Chief Economist Eric Schiff appeared on Fox Business News after the Fed announcement to make the point that cheap U.S. money – that is, too much U.S. money being available – eventually “comes home to roost.”
"We have a lot of dollars sloshing around the world thanks to years and years of artificially low interest rates and quantitative easing, and more of those dollars are going to be coming home as foreigners get out of U.S. financial asset(s)," Schiff said.
Schiff also noted the general uncertainty the U.S. economy faces, a theme well described by Nick Timiraos of The Wall Street Journal in a robust exploration of “inflation expectations.”
Timiraos explains that inflation expectations are being closely monitored by the Fed in the wake of a volatile first half of 2025. While inflation itself has been milder than some projections, it is the behavior of Americans that everyone is trying to predict. That’s where inflation expectations come in.
For instance, Timiraos writes, if retailers anticipate higher costs, they raise prices in advance. Landlords, if energy or operating costs are expected to rise, will raise rents. If workers expect the price of food or housing to increase, they will demand higher pay now.
The problem for the Fed is how to measure this. Quantifying the future behavior of humans is challenging at best. Back in the 80s, studying for an econ exam in college, I had an epiphany: “Economics is an artificial science based on greed.” Nevertheless, advanced mathematics and logic are applied around the clock to the vagaries of human behavior in an attempt to make financial predictions. Data crunching gets more sophisticated by the second, now accelerated by artificial intelligence and machine learning.
A good example of the many factors that contribute to an economic reality is trying to buy eggs. There’s a problem with bird flu. Millions upon millions of laying birds and pullets (future laying birds) have had to be killed as the virus infected large commercial poultry houses, sending prices skyrocketing.
Politics have also played a part. Tariffs have impacted the affordability of imported eggs from Mexico, Turkey, Brazil and Honduras, as well as equipment and supplies for poultry producers. Changes at HHS have stopped the current bird flu vaccine development program and vaccine research is starting over at ground zero.
Then there is consumer behavior. According to consumer surveys, Americans are buying cheaper eggs less often. This means monthly buys are increasing, weekly buys are decreasing.
At the same time, store brand “regular” eggs are selling out, and “premium” eggs (“cage-free,” “organic,” “pasture-raised,” “well-adjusted and upwardly mobile”) are not. And tellingly, shoppers are not going to a second store if their egg choice is sold out.
Egg producers may have to pivot their production methods accordingly, which will in turn impact price.
There has been a lot of criticism from the White House directed at the Fed, and particularly the chairman, Jerome Powell. A primary reason is that lower interest rates are central to supporting the Federal debt which is dangerously being funded by issuing Treasury bonds.
Higher interest rates make our debt more expensive. Using Treasurys to fund our debt is akin to me wanting another pair of red shoes, having a maxed-out credit card, and taking out another credit card to buy the shoes and to make a partial payment to the maxed-out card.
If I told you I was buying designer shoes this way you would think I was a moron. Yet this is how we manage $34 trillion in debt.
The FOMC’s public statement Wednesday read like a Federal Reserve statement: not unlike reading your blender manual for entertainment. Given the fickle and chaotic environment from which Powell and the FOMC must attempt to make predictions and projections, their dullness is as soothing as a worry stone.
Merritt Hamilton Allen is a PR executive and former Navy officer. She appeared regularly as a panelist on NM PBS and is a frequent guest on News Radio KKOB. A Republican for 36 years, she became an independent upon reading the 2024 Republican platform. She lives amicably with her Democratic husband north of I-40 where they run one head of dog, and one of cat. She can be reached at
