Federal Reserve Chairman Jerome Powell is unlikely to see his policy committee granting another significant interest rate cut as long as the labour market holds steady. In his recent press conference, Powell framed the latest half-point rate reduction as a “recalibration” designed to ensure that the labour market remains robust after the Fed brought the benchmark lending rate down to a range of 4.75% to 5%.
This decision represents a notable departure from the Fed’s usual gradualism regarding rate changes. Some officials supported the move by pointing to recent inflation data, which convinced them that price growth was approaching the 2% target. However, the meeting minutes revealed that not everyone was on board with such a sharp cut. Some preferred a more cautious, gradual approach, perhaps due to the economy’s stubborn resilience, despite what Fed officials like to call a “restrictive” policy.
In typical Fed style, while some participants might have grumbled for a 25-basis-point cut instead, they fell in line with the larger 50-point move. The minutes suggested that many would have been content with the more modest cut. Indeed, the minutes noted a “substantial majority” supporting the more significant reduction.
September’s labour market data showed a strong recovery after three months of sluggish hiring. Jobs grew by 254,000, and the unemployment rate dipped to 4.1%. The Atlanta Fed’s GDP index now estimates the economy expanded at an annualised rate of 3.2% in the third quarter. Some Fed officials, however, sign that they would prefer a more cautious pace from here.
“Given the current economic situation, I view the costs of easing too much, too soon, as higher than those of easing too little, too late,” St. Louis Fed President Alberto Musalem said on Monday at an event hosted by the Money Marketeers of New York University. Musalem is set to vote for the Federal Open Market Committee in 2025.
As mentioned in my previous comment, nothing has been decided yet, and the level of uncertainties will increase the market’s volatility.