At a time when Americans are still dealing with inflation, the Federal Reserve has cut interest rates by half a percentage point.
On Wednesday, Breitbart noted:
The Federal Reserve moved to cut interest rates by a half percentage point—the first reduction since the central bank cut rates to near zero when the pandemic struck in 2020—in a vote of confidence that inflation will continue to moderate and an attempt to fend off a further increase in unemployment.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated,” the Fed said in a statement.
…Fed officials have also said that they now view the risks to their mandate to maintain full employment to be greater than the risks of a resurgence of inflation. Earlier this summer, the unemployment rate tripped the Sahm Rule threshold by rising more than a half a percentage point above its recent low, typically a signal that the economy is already in a recession. Claudia Sahm, whose research is behind the rule, has said she does not think the economy is currently in a recession but worries that restrictive monetary policy could unnecessarily increase unemployment even more.
The article concludes:
The longer-run projection for the fed funds rate rose to 2.9 percent, four-tenths of a point above the 2.5 percent the Fed had consistently projected from 2019 through the end of last year. In the June projections, officials had indicated an expectation for a longer run rate of 2.8 percent.
On the other hand, unemployment is now seen as going higher. When the Fed last released projections in June, officials forecast a four percent rate of unemployment at year-end. The new projections have unemployment rising to 4.4 percent. Next year, unemployment is seen as staying at 4.4 percent, up from the earlier estimate of 4.2 percent. Similarly, the median projection for economic growth ticked down to two percent from 2.1 percent this year.
Eleven officials voted for the rate cut. One Fed governor, Michelle Bowman, dissented, preferring a quarter-point cut.
I am not an economist, so I don’t have a lot to say about this. However, I do think inflation has continued to be a problem that cutting interest rates might exacerbate. I am hoping that the Federal Reserve has made the right decision for the right reasons and that this is not a political move.