The US Federal Reserve is on the verge of implementing a significant cut to interest rates, marking a pivotal moment in the nation’s economic policy. In large part, this decision has been informed by recent economic indicators. In practical terms, it will have a much greater impact on borrowers across the country. The expected Fed action, out of step with recent negative job reports and strong inflation, represents a complicated economic picture.
The Fed’s decision to reduce interest rates is not influenced by external political pressures, including Donald Trump’s ongoing campaign rhetoric. It is a response to their own internal score-keeping assessments that for many months have shown a need for lower borrowing costs. The Fed’s first cut to interest rates since December 2022. The prevailing federal funds rate currently is in a targeted range of 4% to 4.25%. This marks the highest level since late 2022.
That first cut, experts tell us, will not be the last t read more >> Indeed, Wells Fargo predicts one more cut – 0.75 percentage points – by year’s end. Senior economist Sarah House featured this prediction near the start of a recent report, citing current economic trends.
This agreement should lower borrowing costs nationwide. This move is especially important considering we are beginning to see signs of a weakening labor market. Recent reports indicate that the US added just 20,000 jobs in August and 30,000 jobs in July. In June, the country saw an outright loss of jobs—an outright decline for the first time since 2020. In light of these developments, worries over the economic picture have begun to deepen.
Inflation remains another pressing issue. Inflation has jumped by 2.9% over the past 12 months through August. That is the largest monthly jump since January and keeps inflation well above the Fed’s 2% target. One clue is that Fed’s policymakers have sent strong signals that they intend to lower borrowing costs this year. They want cuts of no less than 50 basis points.
Yet the global picture only compounds the challenge. In reaction to the same economic pressures, central banks in the UK, Europe, Canada and beyond have already begun cutting interest rates. This unexpected trend underscores a rare and deepening, synchronized effort among central banks to beat back the emerging economic hurricane on both sides of the Atlantic.
Despite the Fed’s internal focus on economic conditions, Trump’s vocal support for rate cuts has drawn attention. He has utilized social media platforms to urge the Fed to take decisive action, stating, “Too Late MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND. HOUSING WILL SOAR!!!”
According to market strategist Art Hogan, that’s the kind of influence we absolutely do not want to see Trump exert over these very important Fed decisions. He remarked, “The president’s policies are certainly causing the economic activity that is forcing the hand of the Fed.” He noted that Trump’s pressure has not significantly affected Fed policy, asserting that “the president’s jawboning of the Fed to lower rates I think has had zero impact whatsoever.”
Hogan discussed the need for the Fed to be careful with any potential rate cuts given the changing nature of the labor market. He stated, “The Fed knows that when the labor market turns, it turns very quickly, so they’re wanting to make sure they’re not stepping on the brakes of the economy at the same time the labor market has already slowed.”