No one knows how Tuesday's presidential election will turn out, but the Federal Reserve's move two days later is much easier to predict: With inflation continui
FILE - Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, on Sept. 18, 2024.
On Thursday, the Fed's policymakers, led by Chair Jerome Powell, are on track to cut their benchmark rate by a quarter-point, to about 4.6%, after having implemented a half-point reduction in September. Economists expect another quarter-point rate cut in December and possibly additional such moves next year. Over time, rate cuts tend to lower the costs of borrowing for consumers and businesses.
"The restriction was in place because inflation was elevated," said Claudia Sahm, chief economist at New Century Advisors and a former Fed economist. "Inflation is no longer elevated. The reason for the restriction is gone." Next year, the Fed will likely start to wrestle with the question of just how low their benchmark rate should go. Eventually, they may want to set it at a level that neither restricts nor stimulates growth — "neutral" in Fed parlance.
"If the unemployment rate stays in the low 4's and the economy is still going to grow at 3%, does it matter that the rate is 4.75% to 5%?" said Joe LaVorgna, chief economist at SMBC Nikko Securities, asked. "Why are they cutting now?"
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