It seems that Federal The US will face a difficult decision on whether to cut rates. Interest by half a percentage point next week or go with expectations for a quarter-point cut, as officials grapple with how quickly to ease monetary policy in the future.
Questions about the size of the cut come as expectations grow that Markets To price in a more modest quarter-point cut from the Fed when its most important meeting of the year ends next Wednesday.
Any cut next week would be the bank’s first. US Central Bank It’s been more than four years and will come seven weeks before the November presidential election.
The Fed had raised rates. Interest To a record high of 5.25 percent to 5.5 percent last July.
Senior Fed members have backed a series of interest rate cuts amid signs of easing inflation, as Fed officials focus on preventing undue economic damage from keeping the economy afloat. Borrowing costs Too high.
According to a report by the Financial Times, which was reviewed by Sky News Arabia, the next question they must answer is how quickly they can return to a “neutral” level that does not dampen growth or raise prices again.
A half-point rate cut in September would allow the Fed to return borrowing costs to normal more quickly, which would remove constraints on the economy and protect Labor market From further weakness.
A half-point rate cut next week “would be less risky with a soft landing,” said Krishna Guha, vice president at Evercore ISI.
“Even if the central bank chooses to move slowly next week, it could adjust policy quickly, as it did when it became clear that inflation was more damaging than expected in 2022,” said Donald Kohn, a former Fed vice chairman.
“They have the opportunity to make up for it if they wait too long, by how quickly they cut and how they signal future cuts,” he said.
Policymakers did not sound alarms about the U.S. economic outlook, but they did warn of rising downside risks. Several of them considered it “likely” that a rate cut would be made at the last meeting, the minutes showed. Jobs and inflation data have since become more supportive of a first rate cut.
He was the chairman of the Federal Reserve. Jerome Powellhe said last month that Central Bank “He will do everything he can to support a strong labor market while making further progress toward price stability.”
Fed member Christopher Waller said Friday he was “open to the magnitude and pace of cuts” and would support a larger cut “if the data suggests it is needed.” But he said he expected any move to be “carefully considered.”
“There may come a time when the Fed acts aggressively and quickly to cut rates, but that will be based on the data,” Waller said, “and not on any preconceived notion of how and when the FOMC will act.”
“While the labor market has clearly cooled, based on the evidence I see, I don’t think the economy is in recession or necessarily heading into a recession anytime soon,” Waller added.
He added that the Federal Reserve may have to “preemptively cut,” a comment that suggests the Fed may cut interest rates by 50 basis points at its next meeting in September.
For his part, John Williams, President of the Federal Reserve Bank of New York, said last Friday that he was undecided about the size of the cut this month, but said the central bank was “well positioned” to achieve its inflation and jobs goals.
“We will meet, we will analyze everything and talk about it,” he told reporters about the size of the first cut.
However, a more aggressive half-point cut by the Fed this month would bring risks.
Recent data has been mixed, with the latest jobs report showing slower monthly growth but also a drop in unemployment and a rise in wages. Inflation data this week showed price pressures were easing even as the core consumer price index, which strips out volatile food and energy prices, rose.
A half-percentage-point move could also raise concerns that the central bank is becoming concerned about the economic outlook, and could prompt financial markets to price in a more dramatic rate cut, outside the Fed’s planned pace of easing.
“There is an argument to be made for a 50 basis point cut but the communication around that is complicated and there is no compelling reason to accept that challenge,” said Loretta Mester, who retired as president of the Cleveland Fed in June.
Half-point cuts “are not necessarily 100 percent guaranteed,” said Richard Clarida, a former Fed vice chairman who is now at Pimco. “It could raise the view that, ‘Wow. What do they know that we don’t?’”
A deeper-than-expected cut would also risk political backlash, given that Republican presidential candidate Donald Trump The Fed warned against any cut in September, just weeks before the election.
Powell recently said the Fed “will never use its tools to support or oppose a political party or any political outcome.”
Futures markets are suggesting the central bank will cut rates by a percentage point by the end of the year, pointing to a half-point cut at one of the three remaining meetings.
