The European Central Bank is poised to cut interest rates again this Thursday, setting the stage for the Federal Reserve to follow suit next week as the global monetary cycle drifts towards a more synchronised easing phase.

Eurozone officials are set to trim borrowing costs for the second time this year, following a July cut. Investors eagerly awaiting policymakers’ signals are bracing for more action later in 2024—because apparently, one cut just isn’t enough these days.
While the ECB is busy lowering rates, the Bank of Canada hiked on September 4. However, all eyes are now on the ECB’s meeting, which happens just days before the Fed’s expected rate cut on September 18. The world’s major economies are moving in step, leaning towards economic support now that inflation risks are, apparently, last year.
Key data on wage growth in the Eurozone, which slowed in the second quarter, has only emboldened policymakers. Meanwhile, Wednesday’s consumer price data could reassure the Fed that inflation is finally under control. After all, Friday’s underwhelming U.S. job numbers weren’t enough to derail the Fed’s plans.

U.S. hiring in August was weaker than expected, with downward revisions for the two previous months. This development is bound to fuel the ongoing debate about how far the Federal Reserve should cut interest rates. Non-farm payrolls rose by 142,000 last month, leaving the three-month average at its lowest point since mid-2020. Meanwhile, the unemployment rate dropped slightly to 4.2%, the first dip in five months, thanks to a reversal in temporary layoffs.
So, what does this mean? The big question is: Will the Fed decide that a tiny, conservative rate cut is enough, or do they need to be more aggressive?
Fed officials have entered their blackout period, during which they keep quiet ahead of meetings. Before that, Governor Christopher Waller wasn’t shy, suggesting on Friday that the Fed might start cutting rates soon.
“The current batch of data no longer calls for patience—it calls for action,” Waller declared.
Investors, who are always up for a good guess, are now banking on at least a 0.5% rate cut this month, with rates dropping by an entire percentage point by the end of 2024. So, what’s the betting pool looking like for the Fed?
Fed officials are also closely monitoring wage growth since it fuels consumer spending, the backbone of the economy. Average hourly earnings for production and non-supervisory workers rose by 4.1%. A healthy increase? Perhaps. But does it mean much when inflation is eating into those gains?

On one side, Fed Chair Jerome Powell is open to a more significant cut to ensure the central bank doesn’t fall behind the curve. Conversely, more cautious officials are still mulling over a quarter-point cut. The stakes? Pretty high. Under Powell’s leadership, the Fed already made the mistake of acting too late to tame the worst inflation wave since the 1980s, which eroded American household purchasing power. If they drag their feet this time, unemployment could spike, plunging the economy into recession.
Powell has to think about his legacy now, and he needs to nail this soft landing.
The Fed must now decide whether to pursue a cautious quarter-point cut or accelerate the easing process. This decision will be controversial, as it always happens during major monetary turning points.
Most economic indicators are flashing warning signals, and some economists argue that taking it slow may be riskier than going big. Rising unemployment can quickly snowball, with consumers cutting back on spending, forcing more layoffs, etc. The jobless rate has already increased by nearly a percentage point from last year’s low, triggering what’s ominously known as the “Sahm Rule,” a recession indicator.

Even as the Fed ponders its next steps, some officials remain wary of inflation risks if rates are slashed too quickly, sparking a fresh wave of economic activity. The core CPI is still over 3%. History shows us that premature monetary easing is a dangerous bet—it can reignite inflation and keep it lingering in the economy for months or even years.
For Powell, the softening job market poses a real threat to what has been an impressive balancing act. In 2022 and 2023, the Fed embarked on its most aggressive tightening cycle in four decades to rein in inflation. Pulling off a soft landing without causing a recession would be a rare historical event.