The move marks an important pivot point, signaling that central bankers believe they have finally won their battle against inflation. It is also significant in timing, coming just months before the U.S. heads to the polls in a tight election that could turn on how Americans feel the economy is going.
The Conversation U.S. spoke with Mike Walden, distinguished professor emeritus at North Carolina State University, about what the rate cut means for the U.S. economy – and possibly the presidential campaign.
What does the Fed rate cut suggest about the state of the economy?
The Federal Reserve has two mandates: to pin inflation to around its target of 2% and to keep unemployment low. And the central bank balances that twin mandate when looking at whether to raise or lower base rates, or keep them the same.
For some time now, policymakers have concentrated on trying to get inflation under control through a series of interest rate hikes that took the Fed’s benchmark or base rate from a range of 0% to 0.25% in early 2022 to 5.25% to 5.5% in September 2024.
I believe what motivated them to drop the rate by a half-point now – rather than the quarter-point that some were expecting – is the labor market. The labor market is not exactly shaky – unemployment is currently at 4.2% – but it isn’t as robust as it was.
The latest job numbers were a little below expectations. And some economists are saying that there is a recession ahead. Indeed, there are some that are saying the U.S. is already in a recession.
So my guess is the majority of the Fed’s rate-setting board were convinced more by the latest unemployment data than inflation. In terms of the dual mandate, the Fed clearly feels it’s got the inflation fight in the bag, so it has turned to its second concern of keeping unemployment low.
The move marks an important pivot point, signaling that central bankers believe they have finally won their battle against inflation. It is also significant in timing, coming just months before the U.S. heads to the polls in a tight election that could turn on how Americans feel the economy is going.
The Conversation U.S. spoke with Mike Walden, distinguished professor emeritus at North Carolina State University, about what the rate cut means for the U.S. economy – and possibly the presidential campaign.
What does the Fed rate cut suggest about the state of the economy?
The Federal Reserve has two mandates: to pin inflation to around its target of 2% and to keep unemployment low. And the central bank balances that twin mandate when looking at whether to raise or lower base rates, or keep them the same.
Google has opened its defense against allegations that it holds an illegal monopoly on online advertising technology with witness testimony saying the industry is vastly more complex and competitive than portrayed by the federal government
A Johnson & Johnson subsidiary filed for bankruptcy for a third time on Friday as the healthcare giant seeks to advance an approximately $10 billion proposed settlement