Fed’s Big Bang
Fed’s Big Bang
Deputy Chief Economist and Managing Director
Michael is part of the team responsible for forecasting and analyzing the North American economy and financial markets. He has spent his career working in either ec…
Michael is part of the team responsible for forecasting and analyzing the North American economy and financial markets. He has spent his career working in either ec…
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The FOMC cut policy rates by 50 bps on September 18, lowering the target range for the fed funds rate to 4.75%-to-5.00%. In the absence of a financial crisis or an economic calamity, this was a historically big way to begin a rate cut campaign. Chair Powell called it a “recalibration” designed to push “policy down over time to a more neutral level” and, in a manner “to make sure that we don’t fall behind”. Tellingly, Powell said if the Fed had the July employment report in hand for the previous FOMC confab (it was released two days later), “we might have well” cut rates at the time. In some respect, September’s move was a catch-up for a missed July 31 action.
Powell said: “As inflation has declined and the labor market has cooled, the upside risks to inflation have diminished and the downside risks to employment have increased. We now see the risks to achieving our employment and inflation goals as roughly in balance, and we are attentive to the risks to both sides of our dual mandate.” And to prevent tipping the balance of risk, inflation and labour market performance on the ground now necessitates a more neutral policy stance.
