Interest rates plummet, signaling further reductions; Miran opposes this move
The Federal Reserve lowered interest rates on Wednesday for the first time since December, as policymakers expressed concerns about the softening job market. The interest rate was reduced to the 4.00%-4.25% range.
Fed Chair Jerome Powell stated that the recent pace of job creation is below the break-even rate needed to hold the unemployment rate constant. He mentioned that the labor market is experiencing higher joblessness among Blacks and a declining workweek. The decision to lower interest rates was made due to these concerns.
Stephen Miran, the new Fed Governor, proposed a more significant set of interest rate cuts in the months before the decision and was the only one to vote against the rate cut. Despite this, Fed Vice Chair of Supervision Michelle Bowman and Governor Christopher Waller joined the wider consensus after dissenting just one meeting earlier.
Powell stated that the Fed's ability to maintain its independence in setting interest rates is based on incoming data and never considering anything else. He also mentioned that the broader sense of a rate path moving slightly faster to a stopping point about a quarter of a percentage point lower than communicated in June is significant.
The projection for unemployment was unchanged at 4.5%, and the one for economic growth slightly higher at 1.6%, versus 1.4%. Rate-path views are not commitments, with higher inflation still a risk and the central bank now in a "meeting-by-meeting situation" when it comes to further rate reductions.
There was political drama surrounding the decision to lower interest rates, including attempts by President Donald Trump to fire Fed Governor Lisa Cook. However, the focus remains on the economic data and the job market, with policymakers weighing the labor market more than the higher inflation, according to Ellen Hazen, chief market strategist at F.L. Putnam Investment Management.
Stephen Miran submitted a year-end rate projection implying he supports further half-percentage-point cuts. Waller has been arguing for greater focus on the job market since the summer. Fed Chair Jerome Powell believes the recent pace of job creation is below the break-even rate needed to hold the unemployment rate constant. More interest rate cuts are expected to follow in October and December.
Christopher Hodge, chief U.S. economist at Natixis, stated that the Fed will ultimately keep moving towards a neutral rate, even at the expense of slightly higher inflation through 2026. This suggests that the current round of interest rate cuts may be a temporary measure to address immediate economic concerns, with a return to a more neutral rate in the long term.
Read also:
- Potential Consequences of Dismantling FEMA Vary Across States
- Railway line in Bavaria threatened by unstable slope - extensive construction site at risk
- Wind Farm Controversy on the Boundary of Laois and Kilkenny
- Puerto Rico's Climate Lawfare Campaign experiences another setback with the dismissal of its deals.
