The Fed Will Stay Patient, Says Michael Darda

Summary

Michael Darda, Roth Capital chief economist, argues the Fed can remain patient, supported by low bond market inflation expectations that are consistent with the 2% PCE target. He sees limited rate hikes priced in and suggests the Fed could be even more patient than markets expect. He also comments on the importance of Fed credibility and the potential impact of a Supreme Court ruling on Governor Lisa Cook.

• Darda believes the Fed will stay patient because bond market inflation expectations are low and stable, aligning with the 2% target.
• Ten-year inflation expectations are around 220 basis points, indicating market confidence in the Fed's credibility.
• The expected policy rate path shows only 30 basis points of tightening over the next year, and Darda thinks even that may be too aggressive.
• Labor market data, particularly the unemployment rate, will be the key driver for Fed policy going forward.
• A Supreme Court ruling on Lisa Cook could influence Fed independence and market perceptions of monetary policy credibility.
• Darda emphasizes the Fed's credibility should not be taken for granted and is critical for markets.