Global Outlook & Strategy

The term recalibration is defined as ‘a change in the way you do or think about something’. The term piqued our interest following its use in several speeches by the US Federal Reserve Chair Jerome Powell where he was explaining why the US Federal Reserve has recently move to make their monetary policy stance less restrictive.

‘Our policy rate had been at a two-decade high since the July 2023 meeting. At the time of that meeting, core inflation was above 4%, well above our target, and unemployment was 3.5%, near a 50-year low. In the 14 months since, inflation has moved down, and unemployment has moved up, in both cases significantly. It was time for a recalibration of our policy stance to reflect progress towards our goals as well as the changed balance of risks.’

Source: US Federal Reserve Chair Jerome Powell’s speech on September 30th, 2024, to the NABE Annual Meeting following the FOMC’s recent 50 basis point rate cut.

This begs the question as to how low interest rates might move if it is just a recalibration as opposed to an easing cycle to prevent a recession. The answer as always will come with the economic data, credit conditions and financial market developments.