Watch out: The US Fed seems to be driving with a blindfold

It may be too late by the time it gets any clarity on the US economy

- JONATHAN LEVIN

The Federal Reserve, the central bank of the United States, is driving blindfolded. That's my single most important takeaway from its policy announcement last week.

On the predictable side, the Fed kept policy rates in a range of 4.25-4.5%, and the rate-setting committee pledged to slow the pace at which it's allowing securities to roll off its balance sheet.

The median Fed participant only subtly updated baseline economic projections for 2025 to show 2.7% PCE inflation (versus 2.5% in December's outlook), 4.4% unemployment (compared with 4.3%), and 1.7% growth in gross domestic product (versus 2.1%). The projections suggested 50 basis points of rate cuts this year, unchanged from the previous estimate.

But the most jarring development was the number of Fed board members and Federal Reserve Bank presidents who reported heightened uncertainty around their outlooks for American joblessness, inflation, and GDP.

Sixteen of 19 respondents now say that the uncertainty around their unemployment projections is higher than typical levels of forecast uncertainty in the past two decades. Seventeen respondents said the same of their inflation forecasts and 17 said uncertainty was elevated for GDP.