On October 29, the Federal Reserve delivered its second 25-basis-point cut since September, lowering the federal funds rate target to 3.75%–4.00%. Moreover, the Fed announced it will halt balance-sheet reduction on December 1, a move that signals a formal pause in quantitative tightening—an additional pivot in the management of liquidity and credit.
Many view this shift as necessary in light of a potentially weakening job market and economic uncertainty exacerbated by the recent government data blackout. But from my vantage point, the macro backdrop hardly justifies aggressive monetary easing. Economic output appears robust by multiple measures: my own model places Q4 GDP growth at a healthy 3.2% annualized rate. Unemployment stands at 4.3%, and the consumer sector remains resilient. In such an environment, additional stimulus runs the very real risk of overheating.
Enter the “Big Beautiful Bill”—the most sweeping fiscal package in recent years. Instead of direct stimulus checks, it delivers a raft of targeted tax credits, higher deductions, business expensing incentives, and expanded credits for families. For example, the Child Tax Credit is now even more generous, and the standard deduction has been nearly doubled for many filers. Businesses benefit from full immediate expensing and enhanced R&D allowances. The Congressional Budget Office projects this fiscal package will add nearly $4 trillion to the deficit over the next decade. The immediate effect: it injects fresh demand into an economy already growing solidly, amplifying upward pressure on both output and inflation.
The risks in this environment are clear. The Fed’s decision echoes the “inflation is temporary” narrative of the pandemic era, now recast as optimism that recent inflation is tariff-driven and will fade by itself ones the one time impact of the import taxes roll out of the data. But as history has shown, demand-driven inflation can prove stubborn, and regaining lost credibility is never easy.
Policy patience, in my view, is the better part of valor. Strong GDP growth, fiscal expansion, and a still-tight labor market all argue for caution, not preemption. If inflation proves sticky, premature easing will force a later, more painful correction.
Looking into 2026: What lies ahead for policy? The true test will be whether inflation subsides and growth cools in tandem. If so, gradual easing makes sense. But in the absence of clear and sustained deterioration, holding firm is the wisest course—preserving flexibility and credibility for when the economy truly needs support.