like the labor market cools and the CEO withdraw from employmentno wonder the Federal Open Market Committee reduced rates from half a percentage point on Wednesday, bringing it down from a High 23 years in a range of 4.75% to 5%.
economists ESTIMATED the long-awaited decision, with EY senior economist Lydia Boussour tells Entrepreneur last month that there would be three rate cuts, each of at least 0.25%, in September, November and December.
Federal Reserve Chairman Jerome Powell explained the September decision at a press conference on Wednesday, stating that the Fed “is guided by our dual mandate to promote maximum employment and stable prices for the American people… While inflation has fallen and the labor market has cooled, the upside risks to inflation are decreased, and the downside risks to employment increased.”
In separate statements sent to The entrepreneurExperts at EY and JP Morgan agreed that the Fed acted with “dexterity”. They had different views on whether the Fed was falling behind the curve.
Federal Reserve Chairman Powell. Credit: Anna Moneymaker/Getty Images
Elyse Ausenbaugh, Chief Investment Strategist at JP Morgan Wealth Managementstated that the Fed made its decision with “faith and commitment.” A 0.5% cut “maintains the Fed's willingness to maintain the data-driven approach it so often emphasizes” and “creates some breathing room” to move more slowly at future meetings based on data.
Meanwhile, EY chief economist Gregory Daco agreed that policymakers could ease rates more slowly in future meetings and predicted gradual rate cuts of 0.25% each in November and December.
However, it raised a more fundamental concern about the Fed's approach to monetary policy. While Ausenbaugh stated that the Fed's decision eases concerns that it is falling behind the curve, Daco asserted that the Fed's easing cycle shows that “two old demons continue to haunt it.”
For one, Daco stated that the Fed does not take a forward-looking approach and instead relies on data points.
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Powell saying they could have cut in July if they had the July jobs report in hand reflects this reactionary attitude,” Daco said. Powell said Wednesday that if the Fed had the July work report before the July meeting, it may have cut rates then. The report showed that the unemployment rate was reaching higher peak since October 2021 with 4.3%.
Other analysts, such as Head of Research at FundstratTom Lee, have taken a similar stance and stated that the Fed relies heavily on data when making decisions.
The second weakness, according to Dako, is that the Fed does not say how long it will take to achieve one neutral political stance that does not stimulate or limit growth.
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“This does not appear to be part of the Fed's communications strategy,” he said.
The Fed's objectives are maximum employment and stable prices, with an inflation target of 2%, according to Powell's speech on Wednesday.
“We're not on any predetermined course,” Powell said. “We will continue to make our decisions meeting by meeting.”