While the upcoming election may be teeming with uncertainty, the decision that would come from the next Fed meeting on Thursday is anything but. As inflation continues to shrink, the Fed is planning to introduce another rate cut for this year.
On Thursday, the Federal Reserve’s policymakers are planning to trim their benchmark interest rate by a quarter-point to 4.50-4.75% range, a second time after the rate cut in September. Many economists also predict another quarter-point cut in December and possibly more next year.
The upcoming rate cut is for a different reason than the usual economic boost because the cut is part of Powell’s “recalibration” to a low-inflation environment.
In September year-on-year inflation dropped to 2.4%, slightly above the 2% target, causing the Fed official to see the high rate as unnecessary since it could hinder growth.
While many Fed officials could not agree on the pace of rate cut, nearly all of them do support further trim.
It is likely that the Fed will start debating on how low the benchmark rate should go, and some may suggest putting it at a level that does not either restrict or stimulate growth or a ‘neutral’ level. Though the committee did not know exactly where this ‘neutral’ level was and has estimated it to be 2.9%, most do agree that the current 4.9% is still far above neutral.
However, some economists expect the neutral rate to be around 3-3.5%, thus seeing the further cut as not needed, as they view the current rate as getting much closer to neutral.
The rate cut meeting will be right after the election. Powell is expected to address the outcome of the election, and how it would affect the economy at his news conference. He is also expected to give assurance that the Fed’s rate decision will not be affected by the election result.
