Federal Reserve decides to cut interest rates in September

Looks like the Federal Reserve is finally about to give in. After months of holding out, they’re getting ready to slash interest rates. The latest meeting in July got the ball rolling, and now, September is looking like the month they’ll actually pull the trigger. 

According to the minutes from the meeting, released today, the Fed is edging closer to a decision many have been waiting for.

Most of the people in the room at the July meeting agreed: if the numbers keep coming in as expected, it’s time to ease up on the rates.

The market is already expecting it, and it would be the first time since the wild days of the Covid pandemic that the Fed has cut rates. 

Everyone on the Federal Open Market Committee voted to keep things steady in July, but some of them were itching to start the cuts right then and there.

Inflation’s in check, but labor market concerns remain

So, what’s the deal? Why not just cut the rates now? The Fed’s got their reasons. The meeting minutes showed that “several” officials thought the progress on inflation and the uptick in unemployment were good enough reasons to cut rates by a quarter of a percent right then. 

But “several” is just a few in Fed-speak, so not everyone was on board. They’re playing it safe, making sure that the numbers continue to support a rate cut before making any big moves.

The data is giving the Fed some confidence, though. Inflation’s finally showing signs of cooling off. The officials admitted that the numbers have been heading in the right direction, giving them hope that inflation is moving towards their 2 percent target. 

Almost all the participants thought the factors causing this disinflation would keep doing their thing in the coming months. But there’s more to the story than just inflation. The labor market’s also on their minds, and not in a good way.

Many officials at the meeting mentioned that the job numbers might not be as good as they look. Payroll gains might be overstated, they said, and that’s raising some eyebrows. 

The unemployment rate has creeped up to 4.3 percent, more than half a percent higher than the 12-month low. That’s not something the Fed can just ignore, especially since an increase like that can be a sign of a coming recession. 

Economists are saying that the rise in unemployment might be due to a growing labor force, but that’s not easing the Fed’s worries.

Rates could drop further if conditions worsen

The Fed’s got interest rates sitting at a 23-year high, somewhere between 5.25 and 5 percent. It’s been over a year since they parked them there, trying to push back against inflation. 

But with inflation now heading towards that 2 percent sweet spot, those high rates are starting to feel like a burden, especially for borrowers.

But how deep and how fast the Fed cuts rates is going to depend on how the job market holds up. The officials have been talking about how the labor market’s slowing down, but they’re not ready to call it weak just yet. 

Job growth has been slowing down month after month, and with the unemployment rate on the rise, there’s definitely something going on. 

That said, Fed Chair Jay Powell isn’t waiting around for the job market to completely fall apart before making a move.