Interest Rates Decrease by Fed - Pessimistic Forecast - Post-Decision Impact
The Federal Reserve (Fed) made a move to lower interest rates by 0.25 percentage points on the 11th of this month, in a decision that was almost unanimous, with one dissenting vote from Fed Governor Stephen Mira. This "risk management cut" was described as such by Federal Reserve Chairman, Jerome Powell.
The updated dot plot underscores divisions within the committee as it forecasts further rate cuts while also raising its growth and employment projections. The Fed's reaction function has shifted in a more cautious direction, with the Fed's current focus more on the employment side of their mandate due to a dramatic slowdown in hiring.
One Fed representative predicted that the federal funds rate should be cut by another 125 basis points by December, while the median projection by Fed decision-makers shows two more cuts in 2025, one more than they expected in June. The Fed's task has become more difficult due to the slowdown in job growth and an uncertain impact of tariffs on inflation.
Powell seemed to draw comfort from the range of opinions about what to do, indicating a high degree of unity among decision-makers. He downplayed the influence of individual officials and emphasized the need for broad support for political decisions. Powell declined to comment on whether he would step down from the Fed board after his term as chair expires in May.
The White House is currently conducting discussions with candidates for Powell's succession and plans to make a decision in the coming months. The participation of Fed governor Lisa Cook, involved in a legal dispute, was uncertain until a court decision late Monday evening. Fed governor Miran was sworn in as a Fed governor on Tuesday morning, just in time for the meeting, following his swift confirmation by the Senate.
Six Fed officials see no further rate cuts this year, indicating that a number of decision-makers remain deeply concerned about inflation. However, the decision to cut rates was a victory for Powell, who is trying to fend off the greatest threat to the Fed's independence in generations. The Fed's outlook for the rest of the year includes another 50 basis points of rate cuts.
Powell emphasized that decision-makers base their decisions on economic data and in the best interest of the public. He reiterated that the Fed's primary goal is to maintain stable prices, full employment, and moderate long-term interest rates. The search results do not provide information on which Fed governors advocated at the last Fed meeting against further rate hikes.
The rate cut comes at a time when the US economy is facing challenges, with uncertainty surrounding the impact of tariffs and the slowdown in job growth. The Fed's actions aim to support economic growth and employment, while keeping inflation in check. As the situation evolves, the Fed will continue to monitor the economy closely and adjust its policies as necessary.
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