A half-percentage-point cut – now given more than a 60% probability in rate futures markets – would signal a commitment to sustaining the current economic expansion and the job growth
A half-percentage-point cut – now given more than a 60% probability in rate futures markets – would signal a commitment to sustaining the current economic expansion and the job growth that goes along with it, something Fed Chair Jerome Powell has said is the top priority now that inflation is approaching the central bank’s 2% target.
A quarter-percentage-point reduction in borrowing costs would be more consistent with how the Fed has begun prior easing cycles outside of any brewing crisis. It would align with the cautious approach policymakers said they were taking towards rate cuts, and track economic data that has shown the economy slowing but not, seemingly, about to crack.
Recent job growth has come down from the high levels of the COVID-19 era, but remains positive; retail sales and industrial production data released on Tuesday beat expectations; and an Atlanta Fed model that tracks estimates of economic growth based on incoming data shows the economy is expanding at a 3.0% annual rate so far in the third quarter, above the central bank’s estimates of US potential.
“We have never come close to a major tipping point on interest rates without more certainty” about how it would start, Diane Swonk, the chief economist at KPMG, wrote on Monday ahead of the start of the Fed’s latest two-day policy meeting.
