FidelityNow: Ilan Kolet’s rate decision reactions

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This was absolutely the right decision to make, right?

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So the Fed's goal, again, is to take incoming

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information on inflation, which has fallen substantially

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since its peak, it's not exactly where they'd like it, and signals on the

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labour market, which, again is not amazing, but

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not awful, right, sort of not unlike a, I say not

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unlike a meal on an aeroplane, and take

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those two bits of information and set monetary policy.

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With an eye towards growth, economic stability, the labour market,

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and inflation. And it was absolutely the right decision to make, I

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believe, to remain on hold and pause

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any further interest rate cuts or hikes,

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for that matter, based on the data.

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The much more concerning thing, as you alluded to, is political interference

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in the Federal Reserve and monetary policymaking.

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And let's not sugarcoat it.

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All right, this is. You know, a serious investigation into the chair,

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into other members of the Fed Board, political appointees, right?

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So this is not what you wanna see.

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Between myself, David Tulk, and David Wolff, we have about 20

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years of combined experience at the Bank of Canada.

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And the separation between the political function of government and

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monetary policy is very deliberate.

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And that's becoming a blurred line in the US.

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In my assessment, both the Fed and even the Bank of Canada probably

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are likely on hold for some time, right?

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And that's because there's a tremendous amount of uncertainty right now, right.

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So we have trade uncertainty, policy uncertainty,

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interference in monetary policy, the functioning of monetary policy.

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And later on that, geopolitical uncertainty and volatility

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as well. Sometimes no decision is the best decision.

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Right? And no decision is not no decision.

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No decision is we've examined the flow of incoming information since

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the last time we've met, and we've determined that the best

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stance for monetary policy right now is to remain data dependent and

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to keep things where they are, right, given the flow of of incoming

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information. Again, I always like to say central banks don't have

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some magical set of data that we don't.

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They're looking at the same Bloomberg screens you and You're looking at and

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assessing the economy versus their baseline and making the best decision

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they can for the future of employment, inflation,

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growth, et cetera. And so there are market

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probabilities and forecasters who say, oh, I think the next rate cut or rate

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hike is gonna be here or there. I would generally sort of fade any

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table-pounding accuracy in rate decisions that

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are towards the end of this year.

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We don't know. Right?

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As the landscape changes, so do the central bank forecast and so do the base

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cases for those interest rate decisions.

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But right now, the data dependent sort of hold steady

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approach is the right approach to take.

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You know, honestly, when I talk about central bank decisions to clients

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across the country, I always mention the framework that

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we should be thinking about when we examine a central bank decision is

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much simpler than what's presented to us sometimes in the ink

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spilled or the experts on TV, we

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should handcuff ourselves to two variables, right?

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So we should, and I talked about this at the start, we should think about

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inflation and we should about unemployment.

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Inflation, again, it was exceptionally high, right, a few years ago, it has

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come down, it is moderated. It is roughly in the neighbourhood of

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where central banks would want it to be.

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Again, inflation measures the rate of change in the price, not the price level

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itself. And the rate change in price, the growth rate of

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prices now, is in the neighbourhood of where central banks would want it to be.

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So call that a check mark or maybe a pencil.

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And the other one is the labour market.

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And again, the labour markets in both Canada and the U.S.

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Is okay. So unemployment rates in Canada were somewhat elevated.

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They have fallen. It looks like Canada job growth is sort of coming back now

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a little bit since maybe Q2 of last year.

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And in the US, you know, we have had declining rates of

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job growth on a monthly basis, but we shouldn't expect the rate of job-growth

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and the unemployment rate we had three years ago, right?

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There is a break-even that will get successively lower.

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There's a lot underneath that as well with population changes and

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stuff. But again, if you look at inflation and you look at

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unemployment. Again, the two most important factors for a central bank

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and a central-bank decision, it indicates that the right stance right now

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is to kind of stay where things are, take that data-dependent approach.