Powell’s Impulsive Rate Cut Signal Threatens Economic Soft Landing and Disproportionately Hurts Vulnerable Households

The article highlights the regrettable decision made by Federal Reserve Chair Jerome Powell to signal rate cuts in December, despite the Fed’s own projections showing that inflation would exceed the 2% target for the next two years. This decision led to a dramatic easing of financial conditions and the rebounding of core PCE inflation to 3.7%. As a result, Powell’s lack of self-discipline has created distributional consequences. While the top 20% of households have benefited significantly from Powell’s dovish turn, the bottom 50% is struggling due to high-floating rate debts and rising inflation. If Powell truly takes the inflation target seriously, he must reverse his December pivot and remove the easing bias altogether, signaling that the next move could well be a hike. Failure to do so will lead to further delays in achieving the desired economic soft landing, with potentially negative impacts on vulnerable households. The article compares Powell’s decision to the Marshmallow Test, where delaying gratification is crucial for success. By consuming the rate cut’marshmallow’, Powell has made achieving an economic soft landing much harder to achieve.