Will Fed cut interest rates in September? This is what the experts say
Investors are no longer betting on whether the Fed will cut rates at their next meeting but on how big it will be as inflation appears to be under control.
The Federal Open Market Committee will kick off their two-day policy meeting Tuesday and it is expected that when they come out the following day the central bank’s lending benchmark will be cut. There are predictions that it will be the first of three before the end of the year.
The question for many is how much policymakers will lower the federal fund rate after economic data from August showed that inflation cooled once again falling to 2.5% year-over-year. The markets have already priced in a quarter percentage point rate cut, but traders are upping their bets that it will end up being a 50-basis point-reduction, according to the CME Group’s FedWatch tool.
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Why does the Federal Reserve cut interest rates?
The Federal Reserve takes this action primarily to stimulate economic growth and support employment during periods of economic weakness or uncertainty. The decision to lower rates is based on various economic indicators, with high inflation being the biggest consideration in recent months.
Recent numbers showed that while inflation is cooling, the hiring rate is slowing down and unemployment is inching up. Rising unemployment numbers are a significant concern for the Fed.
Cutting interest rates can help stimulate economic activity, which may lead to job creation and lower unemployment. When the labor market is weak, cutting rates can boost employment by encouraging businesses to expand and hire more workers.
These are among the factors being considered by economists as they make predictions about the Federal Reserve cutting interest rates.
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Will the Fed cut interest rates in September? This is what the experts say
A poll conducted by Reuters among economists indicates a majority believes the Fed will cut rates at each of the remaining three meetings of the year, with only a third still predicting just two cuts in 2024.
Personal consumption expenditures (PCE) price index inflation, which is the Fed’s preferred measure, is expected to hit policymakers’ 2% target in the first quarter of 2025.
Claudia Sahm, chief economist for New Century Advisors, who is in favor of a bigger rate cut, told CNBC that the Fed has gotten what it has been asking for with two months of good inflation data.
“If Powell wants to deliver on his, ‘we want no further weakening, no further cooling,’ they are going to have to, like, really move here, because that cooling trend is well established. Until it is interrupted, we are going to continue to see payrolls drift down and [the] unemployment rate drift up,” said she.