Fed Cuts Rates Again in Effort to Maintain Economic Momentum
The United States Federal Reserve has once again cut its benchmark lending rate, this time by a quarter percentage point. This decision comes as policymakers continue to work towards maintaining the economic expansion on solid footing.
A Quarter-Point Cut: A Slightly Less Aggressive Approach
In September, the Fed had implemented a half-point cut in an effort to stimulate the economy. However, with the current economic outlook being uncertain and inflation being near its target, policymakers have decided to take a slightly more measured approach. The decision was unanimous among officials, who lowered the federal funds rate to a range of 4.5 per cent to 4.75 per cent.
The Risks to Economic Goals are "Roughly in Balance"
According to the Federal Open Market Committee’s statement, the risks to achieving its employment and inflation goals are roughly in balance. This suggests that policymakers are aware of both sides of the dual mandate, which includes keeping unemployment low and inflation at a sustainable rate.
Inflation is Moving Towards Target, but Progress is Choppy
The Fed has noted that inflation has made progress towards the central bank’s goal of 2 per cent. However, this progress has been choppy, with the rate of price increases easing to 2.1 per cent in September from a year earlier.
A Robust Economy, But Labor Market Conditions Have Eased
The U.S. economy powered ahead at a 2.8 per cent annual rate in the third quarter, fueled by a pickup in consumer spending. However, concerns about imminent labor market weakening have abated, but data still point to a cooling trend. Employers added just 12,000 jobs in October, restrained by severe weather and a major strike.
The Impact on Financial Markets
The decision has had an immediate impact on financial markets. The S&P 500 index of U.S. stocks remained higher, while Treasuries pared gains and the dollar pared losses. However, traders saw a quarter-point cut as a near certainty, and futures markets show a high probability of another similar-sized cut in December.
A Shift in Language
Policymakers have modified their language around the job market slightly. They noted that labor market conditions have generally eased, and the unemployment rate has moved up but remains low.
Increased Scrutiny Ahead
The decision follows the re-election of President Donald Trump, who has used economic policies as a key part of his campaign. With the Fed being under increased scrutiny ahead, it will be interesting to see how policymakers navigate this challenging landscape.
What’s Next?
With the possibility of another rate cut in December and concerns about inflation, it is clear that the economy remains a top priority for policymakers. As we move forward into 2024, it will be essential for the Fed to continue its efforts to maintain economic momentum while keeping inflation at bay.
The Road Ahead: Challenges and Opportunities
As we look ahead, there are several challenges and opportunities that lie on the horizon. The economy is expected to continue growing, but at a slower pace than in previous years. Inflation remains near target, but with progress being choppy, it’s essential for policymakers to stay vigilant.
Conclusion
The Fed’s decision to cut its benchmark lending rate by a quarter percentage point sends a clear signal that policymakers are committed to maintaining economic momentum. With the economy facing several challenges and opportunities ahead, it will be essential for policymakers to continue their efforts to balance growth with inflation.
Timeline of Economic Events
- The U.S. economy powered ahead at a 2.8 per cent annual rate in the third quarter.
- Concerns about imminent labor market weakening have abated, but data still point to a cooling trend.
- Employers added just 12,000 jobs in October, restrained by severe weather and a major strike.
- The S&P 500 index of U.S. stocks remained higher, while Treasuries pared gains and the dollar pared losses.
Key Statistics
- Federal funds rate: 4.5 per cent to 4.75 per cent
- Inflation rate: 2.1 per cent from a year earlier
- Unemployment rate: Moving up but remains low
Sources
- Bloomberg.com
- The Federal Reserve
