federal Reserve is widely expected to be less Interest Rates The move this week comes after borrowing costs remained at a two-decade high for more than a year.
How much, though, is an open question.
Forecasters expect the Federal Open Market Committee to cut interest rates by a quarter point to a range of 5% to 5.25%, while economists believe the Federal Open Market Committee will cut interest rates by a quarter point to a range of 5% to 5.25%. JPMorgan Chase & Co. expects a half-point move. Investors are seeing a half-point adjustment as an even better prospect.
New quarterly estimates released at the conclusion of the central bank’s two-day policy meeting will provide more insight into borrowing costs and the road ahead for the economy.
Investors see a more aggressive path of cuts this year than the series of quarter-point reductions typically expected by economists. Financial markets have already priced in a reduction of more than a full percentage point before the year ends, meaning at least a half-point cut.
Fed Chair Jerome Powell At the press conference he will need to strike a balance between his own views, the committee’s views and the message sent by the so-called “dot plot” of individuals’ rate estimates – something that could prove challenging if the narratives differ.
The decision will be announced via a statement after the meeting in Washington at 2 p.m. on Wednesday. Powell will hold a press conference 30 minutes later. Here’s what to watch:
‘The Dots’ and Economic Forecasting
Every quarter the Fed publishes a Summary of Economic Projections, a compilation of policymakers’ individual forecasts for the federal funds rate, unemployment, economic growth and inflation. This week’s SEP will include projections from 2024 to 2027.
This will include a variety of views about interest rates this year. Many participants talked about reducing interest rates. FOMCThe July meeting came amid a rise in unemployment and a drop in inflation. Since then, the labor market has weakened even further. On the other hand, consumer prices excluding food and energy rose unexpectedly in August, strengthening the case for proceeding cautiously.
The Fed’s June dot plot
While the average point estimate suggests a three-quarter-point cut this year, there are also many officials who think the Fed should lower rates even faster.
“Many people think this cut should be 50 basis points, or a 50 basis point cut later this year,” said Derek Tang, an economist at LH Mayer/Monetary Policy Analytics. “The economy is softening much faster than they expected.”
Economic forecasts for this year will also be revised upward. The unemployment rate has already surpassed the Fed’s June forecast of 4%, and the central bank’s preferred inflation metric — 2.5% — has already fallen below the committee’s most recent median forecast.
FOMC statement
The FOMC does not vote on forecasts, but they do vote on statements. The document provides a qualitative description of how the committee as a whole views the near-term outlook relative to its mandate of stable prices and maximum employment.
There are a number of possibilities that the terminology could change, including language relating to the balance of risks between employment and inflation.
While the July statement said these risks are “moving toward a better balance,” Macropolicy Perspectives’ Julia Coronado and Laura Rosner-Warburton say that line now differs from recent comments by both Powell and Fed Governor Christopher Waller. Coronado and Rosner-Warburton say the FOMC may instead adopt a line similar to what Waller said on Sept. 6: “The balance of risks has shifted toward the employment side of our dual mandate.”
The committee could also choose to describe further weakness in the labor market as “unwaned,” a Greenspan-era term that Powell revived in a recent speech.
Economists are divided on whether and how policymakers will signal future rate cuts in the statement. About 44% of economists surveyed by Bloomberg News said officials would acknowledge the possibility of further adjustments in the document, while 31% said they would more clearly express their intention to make a series of cuts. rate cuts and provide guidance on speed.
Press Conference
The press conference will provide insight not only into the committee’s thinking but also into Powell’s thinking. Fed watchers believe the chairman is more uncomfortable with the recent softness in the job market than the average voter on the committee.
Powell is increasingly bullish that the Fed can control inflation with little cost to the economy and jobs. A surge in unemployment now would bring high political and economic costs, a situation any central bank chief would want to avoid.
How much, though, is an open question.
Forecasters expect the Federal Open Market Committee to cut interest rates by a quarter point to a range of 5% to 5.25%, while economists believe the Federal Open Market Committee will cut interest rates by a quarter point to a range of 5% to 5.25%. JPMorgan Chase & Co. expects a half-point move. Investors are seeing a half-point adjustment as an even better prospect.
New quarterly estimates released at the conclusion of the central bank’s two-day policy meeting will provide more insight into borrowing costs and the road ahead for the economy.
Investors see a more aggressive path of cuts this year than the series of quarter-point reductions typically expected by economists. Financial markets have already priced in a reduction of more than a full percentage point before the year ends, meaning at least a half-point cut.
Fed Chair Jerome Powell At the press conference he will need to strike a balance between his own views, the committee’s views and the message sent by the so-called “dot plot” of individuals’ rate estimates – something that could prove challenging if the narratives differ.
The decision will be announced via a statement after the meeting in Washington at 2 p.m. on Wednesday. Powell will hold a press conference 30 minutes later. Here’s what to watch:
‘The Dots’ and Economic Forecasting
Every quarter the Fed publishes a Summary of Economic Projections, a compilation of policymakers’ individual forecasts for the federal funds rate, unemployment, economic growth and inflation. This week’s SEP will include projections from 2024 to 2027.
This will include a variety of views about interest rates this year. Many participants talked about reducing interest rates. FOMCThe July meeting came amid a rise in unemployment and a drop in inflation. Since then, the labor market has weakened even further. On the other hand, consumer prices excluding food and energy rose unexpectedly in August, strengthening the case for proceeding cautiously.
The Fed’s June dot plot
While the average point estimate suggests a three-quarter-point cut this year, there are also many officials who think the Fed should lower rates even faster.
“Many people think this cut should be 50 basis points, or a 50 basis point cut later this year,” said Derek Tang, an economist at LH Mayer/Monetary Policy Analytics. “The economy is softening much faster than they expected.”
Economic forecasts for this year will also be revised upward. The unemployment rate has already surpassed the Fed’s June forecast of 4%, and the central bank’s preferred inflation metric — 2.5% — has already fallen below the committee’s most recent median forecast.
FOMC statement
The FOMC does not vote on forecasts, but they do vote on statements. The document provides a qualitative description of how the committee as a whole views the near-term outlook relative to its mandate of stable prices and maximum employment.
There are a number of possibilities that the terminology could change, including language relating to the balance of risks between employment and inflation.
While the July statement said these risks are “moving toward a better balance,” Macropolicy Perspectives’ Julia Coronado and Laura Rosner-Warburton say that line now differs from recent comments by both Powell and Fed Governor Christopher Waller. Coronado and Rosner-Warburton say the FOMC may instead adopt a line similar to what Waller said on Sept. 6: “The balance of risks has shifted toward the employment side of our dual mandate.”
The committee could also choose to describe further weakness in the labor market as “unwaned,” a Greenspan-era term that Powell revived in a recent speech.
Economists are divided on whether and how policymakers will signal future rate cuts in the statement. About 44% of economists surveyed by Bloomberg News said officials would acknowledge the possibility of further adjustments in the document, while 31% said they would more clearly express their intention to make a series of cuts. rate cuts and provide guidance on speed.
Press Conference
The press conference will provide insight not only into the committee’s thinking but also into Powell’s thinking. Fed watchers believe the chairman is more uncomfortable with the recent softness in the job market than the average voter on the committee.
Powell is increasingly bullish that the Fed can control inflation with little cost to the economy and jobs. A surge in unemployment now would bring high political and economic costs, a situation any central bank chief would want to avoid.
“It is almost certain that the Fed will begin a rate-cutting cycle at its September 17-18 meeting. Whether they will begin with a 25 or 50 basis point cut is still undecided. In our view, forecast consistency and risk management point to 50 basis points as the right choice. The absence of clear guidance on the likelihood of a larger move so far points to a 25 basis point choice.”
Anna Wong, Chief US Economist
If officials decide to lower rates by a quarter point, Powell will have an opportunity to signal that his goal is to prevent a further deterioration in the job market.
“The message will be: We want to have additional ammunition on the table, but we’re not going to use it today,” said Ellen Mead, a former senior adviser for policy and communications at the Fed’s board and now a research professor at Duke University.
New Voters
The Fed meeting will also be the first for new Cleveland Fed President Beth Hammack. The former Goldman Sachs Group Inc. veteran took office in August and will vote on the rest of this year’s policy decisions.
