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Solid indicators from the financial markets and feedback from Fed officials suggest that the Federal Reserve is likely to lower interest rates in the forthcoming meeting scheduled for September 18. In a recent address, Fed Chair Jerome Powell remarked, “The moment for policy adjustment has arrived. The trajectory is evident, and the timing along with the speed of rate reductions will be influenced by incoming data, future projections, and the risk balance.”
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Comments made by Powell indicate that the Fed is prepared to start cutting rates after a prolonged period of maintaining them at a peak level for the past 23 years.
Read: Fed’s Jerome Powell Announces ‘Time Has Come’ for Interest Rate Reductions (via @WSJ) https://t.co/n5M7g6HPag
— Illinois Manufacturers’ Association (IMA) (@IMA_Today) August 26, 2024
The central bank has been actively engaged in a series of rate hikes since early 2022 to address soaring inflation not seen in decades. However, with inflation rates moderating and a slowdown in the job market, it appears the Fed is adjusting its course. The minutes from the Fed’s July meeting also hinted at possible support for a reduction in rates.
A number of policy makers noted that the recent advances in managing inflation and the rise in unemployment rates created a valid argument for a 25 basis points cut in rates during that meeting, or that they could have backed such a move. Updated forecasts from the Fed, scheduled for release on September 18, will shed more light on the central bank’s intentions.
Powell Suggests Imminent Rate Cuts
In June, the majority of policymakers anticipated one or two reductions in interest rates for 2024, although a small faction believed rates would remain unchanged. Projections suggest that by the end of 2024, the Federal Funds rate could be between 4.25% and 4.5%, a full percentage point below current levels. The forthcoming decision from the Fed to lower rates signifies that officials are optimistic that inflationary pressures are subsiding.
Powell credited the advancements in controlling inflation to the “unraveling” of pandemic-induced supply and demand distortions, enhancements in supply chains, and a moderating job market. Yet, uncertainties linger regarding the rate cut pace for the rest of the year and their potential economic impact. A major concern remains the future of America’s employment landscape, a critical component of the U.S. economy.
If Americans struggle to secure new employment or encounter layoffs, they may reduce their spending, which could lead to negative repercussions, considering that consumer expenditure constitutes about 70% of the U.S. economy. Financial markets and policymakers are anticipating that the Fed will cut rates on September 18, but uncertainties persist. The Fed has maintained adaptability in its strategy, and the velocity of rate cuts will rely on forthcoming economic data and the changing outlook regarding inflation and employment.
