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The problem isn\u2019t that the data is bad; in fact, most of it seems to be trending<\/a> in the right direction. It\u2019s that the Fed is relying on it too much<\/a> to make its decisions, Fundstrat Global Advisors managing partner Tom Lee told CNBC<\/a><\/em>.\u00a0<\/p>\n By doing so, Lee argued, the Fed was late to make the decisions it needed to in order to curb inflation\u2014and the Fed risks repeating that same mistake again now. \u201cNow they\u2019re missing the soft landing turn,\u201d Lee said.\u00a0<\/p>\n The probabilities of a soft landing are going up, according to Lee, but are not yet a sure thing. \u201c[The] key is the Fed getting off data dependence because data dependence is the reason they missed the inflation turn,\u201d he said.\u00a0\u00a0<\/p>\n Lee\u2019s comments come in stark contrast to the Fed\u2019s data-dependent approach. Federal Reserve chair Jerome Powell has repeatedly said he won\u2019t cut rates until he sees more \u201cgood data<\/a>.\u201d\u00a0<\/p>\n Powell seems to finally be getting his wish<\/a>. Federal Reserve officials \u201cjudged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent,\u201d according to the minutes from the latest Fed meeting released on Wednesday.\u00a0<\/p>\n However, the Fed wasn\u2019t always so squarely focused on data. In fact, the idea that it should be is relatively new in the history of the Fed, only starting around<\/a> the mid-2010s. Essentially, it means the Fed doesn\u2019t commit to a specific course of action when it comes to cutting rates and lowering inflation. Instead, it makes its decisions based on specific market indicators that point to the fact prices are actually falling. In the past, the Fed would sometimes make its interest rate decisions based on a predetermined timeline. For example in August 2011, it openly stated that it expected interest rates to remain at zero percent until \u201cat least through mid-2013.\u201d\u00a0<\/p>\n Critics<\/a> say the Fed\u2019s data-dependent approach means it sometimes ends up behind the curve because it waits for the data to come in rather than anticipating where the economy is headed. They also say relying too heavily on data isn\u2019t helpful if the data is giving mixed signals<\/a>. This was especially prevalent over the past year, where inflation kept climbing but consumers kept spending<\/a>, when usually the opposite happens during periods of high prices. (That said, consumers are now becoming thriftier<\/a> than they were earlier in the year.)\u00a0<\/p>\n Data dependency done right requires sifting through it all while recognizing and separating the important parts from the distractions, according to James Bullard, former president of the Federal Reserve Bank of St. Louis.\u00a0<\/p>\n \u201cEvery observation on the economy (e.g., a GDP report or an employment report) contains a certain amount of signal and a certain amount of noise,\u201d Bullard, a supporter of data dependency, wrote in a 2016 blog post<\/a>. \u201cThe art of policymaking includes separating the signal from the noise.\u201d<\/p>\n The need for the Fed to accurately keep its finger on the pulse is critical at the moment, given that the economy is teetering on a knife\u2019s edge between a miraculous soft landing and a recession. For the better part of two years, the Fed managed to lower inflation without resulting in a recession and a spike in unemployment. But now if it misses the proper timing for a rate cut, all that work could go to waste. At the moment, economists and investors believe a rate cut in September<\/a> is all but certain\u2014and a second before the end of the year is likely<\/a>.\u00a0<\/p>\n Lee is already eyeing further cuts. \u201cCutting more aggressively would actually make sense, at least from the market\u2019s perspective,\u201d he said.<\/p>\n<\/div>\nRecommended Newsletter: <\/strong>High-level insights for high-powered executives. Subscribe to the CEO Daily newsletter for free today. Subscribe now<\/a>.<\/div>\n