With prospects having diminished for a prolonged series of Fed rate cuts, this episode is beginning to look quit a bit like the mid-1990s, when there was a shallow cycle of easing after considerable monetary tightening, according to BNP Paribas.
Almost 30 years ago, the Federal Reserve ended a cutting cycle earlier than may have been anticipated,” Timothy High, a senior rates strategist at the bank, wrote in a note last week. Much like in the current period, the Fed viewed rates as restrictive, and cut them to preserve a soft landing, even though inflation was faster than policymakers wanted. They went on to pause for a prolonged stretch as strong growth continued alongside disinflation.
“2025 could end up rhyming with 1996,” High wrote. “Despite some signs of labor market weakness, the US economy has remained resilient with growth above potential and disinflation largely intact.”
