FOMC Chooses Larger 50-Basis Point Rate Cut
September 18, 2024
As in September 2007, January 2001, and October 1987, the Federal Open Market Committee chose to kick off an easing cycle with a 50-basis point reduction. The verdict was not unanimous. Governor Bowman preferred to cut the federal funds target only by 25 basis points. The new deposit rate range will be 4.75-5.0%. Bowman’s dissent was the first objection in an interest rate vote since Esther George in June 2022 wanted to raise the rate by 50 basis points instead of the 75-basis point preference shared by her colleagues.
The FOMC statement, not surprisingly, contains several modifications:
- Job gains have “slowed,” rather than “moderated” as noted previously.
- An assertion that officials “have gained greater confidence that inflation is moving sustainably toward 2%” has been added to the text.
- The two goals of 2% inflation and employment maximization were previously said to be moving into better balance; now such are balanced.
- A statement that the Committee is highly attentive to inflation risks was dropped.
- Projected GDP growth follows a lower path than indicated 3 months ago.
- Projected PCE inflation is higher than before.
- About 200 basis points of interest rate cuts by the end of 2026 are implied by the new summary of economic projections.
Chairman Powell’s press conference maintained that the U.S. economy is still in good shape. Today’s atypically large initial rate cut is possible because inflation is close to target, while the policy that existed before the rate cut represents a significant degree of restraint. He would not be pinned down to what interest rate level would represent a neutral stance (i.e., neither augmenting nor slowing growth), nor when neutrality would be achieved. The confidence that price stability will be achieved translated into an opportunity to kick off easing in a strong way but doesn’t necessarily that such forcefulness will be required at each meeting. As before, decisions are made on a meeting-to-meeting basis and will be based on all available information each time a decision is required.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
ShareThis
