Dollar firms as Fed cut scope eyed on 2% goal, neutral rate

Hassett’s view: room to cut if inflation eases, jobs cool

Kevin Hassett argues the federal reserve still has significant room for interest rate cuts, provided inflation continues to ease and the labor market cools further. The claim hinges on evidence of disinflation and a softer jobs backdrop without undermining price stability.

He has resisted laying out a preset timetable and framed any move as data-driven rather than political, according to the Associated Press. He has also left open the option for larger-than-usual steps if conditions warranted.

Why it matters: 2% inflation target, neutral rate, AI productivity

The policy calculus revolves around progress toward the Fed’s 2% inflation target, uncertainty about the neutral rate, and whether AI-led productivity gains expand room to ease. As reported by Barron’s, administration officials contend that faster productivity could reduce inflation pressure, potentially giving the central bank scope to lower rates without reigniting price growth.

Policy has been described as ‘modestly restrictive,’ said Jerome Powell, Chair of the Federal Reserve. That framing implies cuts are plausible if inflation cools and labor indicators soften, reinforcing data dependence over a calendar-driven path.

The dollar edged higher for a second day as traders questioned whether the Fed can deliver three rate cuts in 2026, according to Bloomberg. That pricing tilts toward a slower or more conditional easing path.

Several Fed officials have recently favored holding rates while monitoring further progress on prices, as reported by MSN. Such guidance tends to temper aggressive cut expectations and supports a measured approach.

Scenarios and triggers shaping potential Fed cuts

Data triggers: PCE inflation, wage growth, job openings, payrolls

A sustainable glide in core PCE toward 2%, moderation in wage growth, reduced job openings, and softer nonfarm payrolls would align with a gradual easing case. Conversely, sticky services inflation or a hiring reacceleration could delay or limit cuts.

The reaction function weights inflation persistence against labor-market slack. Clear, repeated improvements across these indicators typically matter more than one-off surprises.

Asset implications: dollar, Treasuries, equities, and crypto markets

A credible disinflation trend with cooling jobs would usually pull Treasury yields lower, pressure the dollar, and support equity segments sensitive to discount rates. If inflation proves sticky, yields could stay higher and compress equity multiples.

Crypto assets tend to be sensitive to dollar liquidity and broader risk appetite. At the time of this writing, Bitcoin is near $67,381 with very high volatility around 11.97%, indicating elevated dispersion risk across digital-asset pricing.

FAQ about Federal Reserve interest rate cuts

How do Jerome Powell, Beth Hammack, Christopher Waller, and Austan Goolsbee differ on the path and pace of cuts?

Powell stresses patience and data; Hammack prioritizes inflation risks; Waller sees room above neutral to ease; Goolsbee allows several cuts if inflation heads lower.

Which data would trigger rate cuts, PCE inflation, wage growth, job openings, or payrolls?

Sustained core PCE disinflation, moderating wages, declining job openings, and softer payrolls together would support cuts; isolated readings are unlikely to be decisive.