It was difficult to make the Fed rate cut

The Fed and the Budgetary Problem: The Status and Perspectives of Interest Rate Cuts in the U.S. Consumer Spending and Investing Economy

As it focused on fighting inflation, the Federal Reserve began cutting interest rates, which in turn started to protect the job market.

It is now cheaper to borrow money from the central bank because it has reduced its benchmark interest rate by half a percentage point.

The Fed has now shown that it is close to ending its fight against inflation. And for good reason. In July the personal consumption expenditure inflation measure was 2.5 percent, a third of the peak in 2022, but that is still elevated. The data has shown inflation falling for much of the past two years. Even though the funds rate is lower, the Fed is still fighting inflation because the rate remains high.

“We’re not saying ‘Mission Accomplished’ or anything like that,” Fed chairman Jerome Powell told reporters. I have to say that we are encouraged by the progress we have made.

Fed officials worry that high interest rates could become an unneeded drag on the economy, since job growth has slowed and the unemployment rate has gone up.

The pace of future rate cuts is still not certain. One member of the committee, Michelle Bowman, wanted to proceed more cautiously on Wednesday, cutting the benchmark rate by just a quarter percentage point. Committee members are divided on how much further rates will need to fall next year.

Falling interest rates will help borrowers, but they will come with a cost for savers. The interest paid for online savings accounts and money market funds will likely decline.

The Fed isn’t Poverty-Free, but It’s Getting Closer to the Establishment: A Monitor of the Labor Market

The Fed move is politically sensitive, coming less than 7 weeks before a presidential election in which voters are most concerned about the strength of the economy. Powell said repeatedly that he and his colleagues are not swayed by politics.

“Our job is to support the economy on behalf of the American people,” Powell said. “And if we get it right, this will benefit the American people very significantly. So we don’t put up any other filters. If you start doing that, I don’t know where you stop.”

The Fed’s mandate for maximum employment and price stability is what makes it different from many other central banks, and its decision for a bigger cut also indicates that it knows there is slowing in the labor market. That’s appropriate. Over the past two months, data has indicated that the labor market was not as strong as the Fed thought. Where things stand is largely fine — the unemployment rate is 4.2 percent, and monthly payroll gains are only somewhat below their strong pace before the pandemic — but the trend is worrisome. The labor market is no longer strong.