A senior economist expects multiple cuts in federal funds rate (the rate that banks pay her ripple consumer interest rates on everything from credit cards to MORTGAGES) before the end of the year.
On Wednesday, the Federal Reserve published the minutes of the meeting for the meeting of the Federal Open Market Committee held on July 30 and July 31. Committee of 12 persons, incl Fed Chairman Jerome Powellmeets eight times a year to discuss monetary policy and interest rates.
Lydia Boussour, senior economist at EY, analyzed the minutes and reported entrepreneur that “there was a noticeable and pleasing change in the perception of the committee.” Dovish refers to a lower interest rate stance to reduce unemployment.
Federal Reserve Chairman Jerome Powell. Photo by Andrew Harnik/Getty Images
“Fed officials are increasingly attuned to the possibility that labor market conditions could deteriorate quickly,” Boussour said, pointing to a weak job report in July and one increase in the unemployment rate. Signs of a slowing labor market have “further strengthened the case” for rate cuts.
Related: CPI report: Inflation hits 3-year low, analysts predict Fed will cut rates next month
Inflation was at a three-year low last month as judged by Consumer Price Index (CPI) report for July. Boussour says that the CPI report, combined with moderate inflation over the past few months, giving the Fed plenty of room to recalibrate its policies.
Based on the record, Boussour expects three rate cuts, each of at least 25 basis points (bps), or 0.25%, before the end of the year.
“(We) anticipate an additional rate cut of 125 bps in 2025,” Boussour said. “While we continue to expect a 25bps rate cut in September, we believe another weak jobs report in August would put a 50bps rate cut on the table.”
The Fed has raised rates 11 times between March 2022 and July 2023. The rate is currently 5.33%, the highest in more than two decades.