WASHINGTON, Sept 18 (Askume) – The Federal Reserve on Wednesday launched a series of expected interest rate cuts that will be half a percentage point more than usual. Fed Chairman Jerome Powell said the moves were intended to reflect policymakers’ commitment to keeping unemployment low while keeping inflation low .
“We’re off to a good, strong start, and I’m very pleased with that,” Powell said at a news conference after the Federal Reserve cut its benchmark policy rate by 50 basis points to a range of 4.75%-5.00%. Confidence is growing stronger, leading some to say the country’s era of high inflation is over. “The logic is clear from an economic perspective and a risk management perspective.”
This is so evident that Powell, who has consistently supported dovish policy since taking over as Fed chair in 2018, was in disagreement with Fed governors for the first time since 2005 , when Michelle Bowman voted against raising interest rates by a quarter percentage point in 2018.
Powell described the move as a “rebalancing” response to a sharp drop in inflation last year; he said the economy remains strong, but the central bank wants to prevent weakness in the job market; analysts say his broad goal is to avoid an unnecessarily high unemployment rate while achieving the central bank’s 2% inflation target.
“A soft landing is near that would strengthen his position as Fed chair,” said Diane Swonk, chief economist at KPMG.
Beyond the half percentage point rate cut approved on Wednesday, Fed policymakers also expect to drop the benchmark rate by half a percentage point by the end of this year, a full percentage point next year, and half a percentage point the following year. The outlook is uncertain.
The move marks a major turn in US monetary policy and acknowledges that the Fed will tighten easing as inflation approaches its target, which is currently about half a percentage point above the target.
Even though the US presidential election is only seven weeks away, the Fed’s policy decision has prompted a fairly subdued reaction from the presidential candidates, at least initially.
Vice President Kamala Harris, the Democratic presidential candidate, called the rate cut “good news” for Americans.
“I know that housing prices are still too high for many middle-class and working-class families,” he said in a statement.
Trump, the Republican nominee who first appointed Powell to lead the Federal Reserve, said the scale of the rate cut showed the economy could be in trouble.
“If they make that many cuts, assuming they’re not just playing politics, the economy is going to be very bad,” Trump told reporters.
However, Powell said the economy remains strong and many job market indicators, such as unemployment claims and even the current unemployment rate of 4.2%, have not reached worrisome levels.
But he agreed with the same concerns economists and analysts have raised about inflation: Monetary policy changes take time to have an effect, and anecdotal information from businesses and falling hiring rates make executives think they must cut the workforce. Further weakness in the market came as others called for quick action to curb inflation.
“The idea is that the time to support the labor market is when the labor market is strong, not when layoffs start occurring,” Powell said.
“a loud bang”
The Fed has kept its policy rate in a range of 5.25% to 5.50% since last July, when it ended an 18-month campaign of rate hikes aimed at controlling inflation that could reach 40% in 2022.
Powell declined to declare victory on that front, but said inflation is now close to the Fed’s 2% target and labor conditions are in line with the central bank’s other goal of maximum employment.
US stocks rose following the statement and quarterly economic forecast update, but later closed lower. The dollar (.DXY) was slightly stronger against a basket of currencies, while US Treasury yields rose.
Interest rate futures traders are pricing in a lower-than-expected outlook from the Fed, with policy rates now expected to end the year in a range of 4.00%-4.25%.
“The Fed ended the pause with a bang,” said Brian Jacobson, chief economist at Annex Wealth Management. ” It’s a strong signal that they’ve cut rates by 50 basis points and expect to cut rates by another 50 basis points this year.” That’s a strong signal. It’s controversial.
Inflation, based on the Fed’s preferred indicator, is currently about half a percentage point above the 2% level, and new economic forecasts now expect annual growth in the personal consumption expenditures price index to reach 2.3% by the end of this year and 2.1% annually in 2017. The unemployment rate appears to be 4.4% this year and will remain that way through 2025. Economic growth is expected to be 2.1% in 2024 and 2% next year, similar to the previous round of forecasts released in June.
