Fed Poised for Second Straight Rate Cut as Economic Risks Mount

Will There Be Dissents?

18 minutes ago

Because of the pull on both sides of the Fed’s dual mandate, not all members of the committee seem to agree on the path ahead.

It’s very likely that one Fed official will want to cut rates more aggressively: Fed Governor Stephen Miran. He was previously a top White House economist and has aligned with President Donald Trump’s position that aggressive cuts are necessary.

Miran, in his first meeting, voted against September’s 25 basis point rate cut, arguing it should have been double that amount. He’s signaled he will do so again.

“My view is that it should be 50,” Miran told Fox Business this month.

At least one other Fed official may vote against the decision—but arguing that the Fed should keep rates flat instead.

There are “meaningful risks of at least one hawkish dissent,” wrote Bhave, of Bank of America.

One such dissenter could be Kansas City Fed President Jeffrey Schmid, who recently noted inflation “remains too high.” Chicago Fed President Austan Goolsbee is another candidate, Bhave wrote, noting he’s recently put himself in the “cautious” camp.

“Let’s be a little wary about frontloading all the rate cuts before we know that inflation’s going to go back down to 2%,” Goolsbee told the Financial Times.

St. Louis Fed President Alberto Musalem, meanwhile, has said he’s “open-minded.”

Fed Governor Michael Barr has also called for a “cautious approach,” though Bank of America says he may ultimately vote with the majority since Fed governors don’t tend to dissent from rate decisions.

-Polo Rocha

The Fed is Flying Blind

57 minutes ago

The government has been shut down since Oct. 1, and that has delayed all kinds of federal economic data. That has created problems for a Fed committee that has tried to be “data dependent” this year.

The problem is that the data, including for inflation and job creation, is based on massive surveys. With the Bureau of Labor Statistics closed, those surveys aren’t being carried out. (With the important exception of the Consumer Price Index report for September, which was published Oct. 24.)

That means there’s very little data for the Fed to base its decision on this month and may continue to create issues for the rest of the year.

“If the shutdown continues, it’s possible that, for the first time in at least six decades, there will be a full month gap in data about jobs and unemployment in the U.S. economy,” Elise Gould, senior economist at the progressive Economic Policy Institute think tank, and Joe Fast, a research assistant, wrote in a commentary.

To read more about this data conundrum, click here.

Why Is the Fed Expected to Cut Rates?

1 hr 56 min ago

Congress has tasked the Fed with a dual mandate to keep inflation low and employment high using the fed funds rate, which is the interest rate banks charge to borrow money from one another. The fed funds rate affects borrowing costs on short-term loans like credit cards and car loans, and indirectly influences longer-term loans like 30-year mortgages.

When inflation is high, the Fed raises the rate to discourage borrowing and cool down the economy, allowing supply and demand to rebalance. When the job market weakens, the Fed cuts interest rates to encourage business and stimulate hiring.

Currently, the economy is facing a rare situation where inflation and the job market are worsening simultaneously, posing a dilemma for the Fed as to which problem to address first.

While inflation remains above the Fed’s goal of a 2% annual rate, officials have become more concerned about the health of the job market, as job creation has slowed nearly to a halt in recent months.

Officials have been split on what approach to take. Some have advocated for further rate cuts in the coming months, while others view inflation as a greater threat and would like to keep rates higher for longer.

Expectations for an October rate cut were cemented Friday when a report showed the Consumer Price Index rose less than expected in September. 

What Happens At a Fed Meeting?

2 hr 18 min ago

The Federal Reserve Open Markets Committee will make monetary policy decisions today and is widely expected to cut its influential fed funds rate by a quarter of a point.

The Federal Open Market Committee, also known as the FOMC, is the body that sets the fed funds rate for the Federal Reserve System, the United States’ central bank. It holds eight regularly scheduled meetings each year, which are not open to the public. The Fed’s use of interest rates to influence the economy is called monetary policy.

The FOMC consists of 12 voting members: the seven board governors, the Federal Reserve Bank of New York president, and four other regional bank presidents who serve rotating one-year terms.

At each FOMC meeting, the committee members discuss economic and financial conditions and decide whether and how much to change the fed funds rate. The FOMC issues a public statement about its decision at 2 p.m. on Wednesday when the meeting concludes. The Fed chair, currently Jerome Powell, typically hosts a press conference afterward to explain the decision.

To read more about what goes on behind closed doors at the FOMC meetings, click here.