Jerome Powell’s ‘Data Dependence’ Approach Criticized By Fundstrat’s Tom Lee: ‘It’s The Reason They Missed The Inflation Turn’

Fundstrat Global Advisors’ managing partner Tom Lee has criticized Federal Reserve Chair Jerome Powell for overly relying on data, which Lee says is impairing the Fed’s decision-making capabilities.

What Happened: Lee expressed concern over the Fed’s heavy reliance on data to inform its decisions. He suggested that this approach has led to delayed actions in addressing inflation and could potentially result in a repeat of similar mistakes, in interview with CNBC’s Squawk Box on Thursday.

“It’s the reason they missed the inflation turn and I think now they’re missing the soft-landing turn,” Lee stated.

Lee pointed out that the Fed’s data-driven strategy, although not inherently flawed, has the potential to make the institution slow in reacting to economic shifts. He emphasized the need for the Fed to reduce its reliance on data and to develop a more proactive approach to decision-making.

“A soft landing, the probabilities are going up but I think the key is the Fed getting off of data dependence,” Lee stated.

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Why It Matters: Lee’s criticism comes at a crucial time when the Federal Reserve is signaling a potential shift in its monetary policy. Recently, several Fed officials, including Boston Fed President Susan Collins and Philadelphia Fed President Patrick Harker, indicated that the central bank might begin easing rates as soon as September.

Collins expressed confidence in the U.S. economy, noting that inflation has receded and the labor market has cooled without raising significant concerns. She suggested that with inflation on track to meet the Fed’s 2% target, it may be time to adjust the benchmark federal funds rate, currently at a 23-year high of 5.25% to 5.5%.

Moreover, investors are keenly watching Fed Chair Powell’s upcoming speech at the Jackson Hole Symposium, scheduled for Friday at 10 a.m. ET.

Historically, Powell’s speeches have significantly impacted market sentiment. For instance, in 2022, Powell hinted that policy would likely need to stay restrictive “for some time” to bring inflation down, causing a spike in Treasury yields and a downturn in equities.

Additionally, Mohamed El-Erian, Chief Economic Advisor at Allianz, highlighted a shift in the Fed’s policy emphasis towards employment, suggesting a September rate cut is almost certain. El-Erian pointed out that this shift comes with increased confidence that the inflation target is now attainable, attributing it to ongoing disinflationary factors.

The minutes from the July Federal Open Market Committee meeting also indicate that policymakers are leaning towards making the first interest rate cut in over four years at the upcoming September meeting.

The minutes revealed that several participants had provided a plausible case for reducing the target range by 25 basis points, based on recent progress on inflation and increases in the unemployment rate.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote