"The Wall Street Oracle": Powell's over-reliance on data may delay decision-making

Co-founder and Head of Research at Fundstrat Global Advisors, Tom Lee, stated that the Federal Reserve is facing issues with data, but the problem does not lie in the quality of the data. In fact, most data seems to be moving in the right direction. The problem lies in the Federal Reserve relying too heavily on this data to make decisions.

Lee believes that the Federal Reserve's excessive reliance on data has led to a delay in making the necessary decisions to curb inflation in the past, and now there is a possibility of repeating the same mistakes. He said, " Now they may miss the opportunity for a soft landing."

Lee sees the possibility of a soft landing increasing, but it is not certain yet. He said, "(The key) is for the Federal Reserve to break free from its reliance on data, as data dependency is the reason for their misjudgment of inflation."

Lee's remarks contrast sharply with the Federal Reserve's data-dependent approach. Federal Reserve Chairman Powell has repeatedly stated that they will not cut interest rates until they see more "good data".

Now Powell seems to have finally gotten his wish. According to the minutes of the Federal Reserve's most recent meeting released on Wednesday, Federal Reserve officials "judged that recent data had bolstered their confidence that inflation is moving sustainably toward 2%".

However, the Federal Reserve has not always been so focused on data. In fact, the idea of paying attention to data is relatively new in the Federal Reserve's history, emerging around the mid-2010s. Essentially, this means that the Federal Reserve does not commit to specific action plans when cutting interest rates and reducing inflation. Instead, the Federal Reserve makes decisions based on specific market indicators.

In the past, the Federal Reserve has sometimes made interest rate decisions based on a predetermined schedule. For example, in August 2011, the Federal Reserve publicly stated that it expected interest rates to remain at zero levels "at least until mid-2013".

Critics argue that the Federal Reserve's reliance on data means that it sometimes lags behind the curve, as it waits for data instead of predicting economic trends. They also say that if the signals from the data are mixed, relying too much on data is futile. This situation has been particularly common in the past year, during which inflation has been high, but consumers have continued to spend, which is not typical during periods of high prices. Nevertheless, consumers have indeed become more frugal than at the beginning of the year.

Former St. Louis Federal Reserve President Brad believes that to correctly rely on data, all data must be filtered, while identifying and distinguishing important parts from noise.

Supporter of data dependency, Brad, wrote in a blog post in 2016: "Every observation of economic data (such as GDP reports or employment reports) contains a certain amount of signal and a certain amount of noise. The art of decision-making involves separating the signal from the noise."

Given that the U.S. economy is teetering between a miraculous soft landing and a recession, accurately grasping the economic pulse is crucial at this time.

For over two years, the Federal Reserve has successfully lowered inflation without triggering an economic recession and soaring unemployment rates. However, if the Federal Reserve misses the right time to cut interest rates, all efforts may be in vain. Currently, economists and investors believe that a rate cut in September is almost certain, and another rate cut before the end of the year is also highly likely Lee has started to consider further rate cuts by the Federal Reserve. He said, "At least from the market's perspective, more aggressive rate cuts actually make sense."