MNI INTERVIEW: Fed Could Cut Around 100BP This Year-Bell

The Federal Reserve has ample room to keep cutting interest rates despite a robust economic backdrop because inflation excluding factors like shelter is already near target and the job market is effectively stalled, former IMF economist Gerwin Bell told MNI. 

“They have room to cut. Inflation is not as stubborn or high as people say, if we look at it correctly. I don't really see the new inflationary momentum coming,” he said in an interview. “About 100 basis point of cuts this year would be my base case, so we end up around 2.5%, 2.25%." (See MNI INTERVIEW: Fed's Miran Sees Substantial Rate Cuts In 2026)

Speaking on Friday, before Fed Chair Jerome Powell said a criminal investigation into a building renovation was part of a campaign to pressure for lower interest rates, Bell said the latest employment report did not change his view that the labor market has weakened substantially. Employment requires additional support from the monetary authorities as they seek to balance their dual mandate, he said.

“A labor market at zero – that’s basically how I look at it. If you look at the three-month moving average the ADP is barely above zero, the NFP first estimate is -33K, the final one is about 29K,” he said.  “The labor market gives me the sense that monetary policy is still restrictive.”

He judged it too soon to tell whether the apparent gap between robust GDP and flaccid job growth is related to some kind of AI-linked productivity boom. “We’ll know in five years. We are ripe for a step-up but it’s too early to call it.”

BEHIND THE CURVE

On the inflation side, Bell argued shelter costs are overstating price pressures, and said some underlying measures were already undershooting the Fed’s 2% target. 

He worries the FOMC is being just as slow to recognize this reversal as it was in spotting the post-Covid surge in prices. 

“Now they are similarly stuck on the idea that they can’t get inflation below 3%. That’s simply wrong. If you take out parts of inflation where the supply shock really hit Chinese imports, by some measures we are now running below 2% inflation,” said Bell

“The second thing is they are worried about their independence. It doesn’t look good, given the political pressure, for the Fed to admit it has been too slow to cut,” he added. 

Bell said Fed Governor Chris Waller is the best placed candidate on the list of possible Trump picks to replace Jerome Powell as chair if the president wants rates to actually go down. 

“I would hope that he chooses Waller, because Waller has credibility on this. He has been right for the last four years, both in the up and the down. He would have the credibility also within the committee to be more aggressive in cutting if it’s justified,” he said.