Fed Expected to Cut Rates by a Quarter Point at Thursday Meeting

New York, NY, November 4, 2024-"Federal Reserve officials are expected to cut interest rates by a quarter percentage point at their meeting Thursday because inflation has continued to make progress toward their 2% goal,” reports the Wall Street Journal.

“Officials began lowering rates at their previous meeting in September by making a larger half-point cut. They are trying to figure out where, exactly, rates should settle after high inflation over the past three years led to a dramatic series of rate increases.

“‘We’re entering this new phase: Policy is going to become less restrictive over time, and that’s because the Fed is more confident on where inflation is going-that it’s going back down to 2%,’ said Loretta Mester, who retired as Cleveland Fed president in June after ten years in the job.

“This week’s meeting should lack the suspense of the prior one, in which markets were left guessing over the size of the first rate cut in four years. Officials would like to avoid the spotlight because their meeting concludes two days after the presidential election, and the Fed strives to maintain an apolitical DNA.

“Policymakers face a stubborn economic puzzle that could influence whether they will feel pressure to slow down or speed up rate cuts in the months ahead. The issue: The labor market continues to show signs of cooling, but consumer spending has been solid.

“Economic data released last week put an exclamation point on this riddle. The economy grew at a solid 2.8% annualized rate in the July-to-September quarter, buoyed by consumer spending that has defied expectations of a slowdown for the past year. Some economists have pointed to such resilience as a sign that the Fed’s rate stance isn’t as tight as some officials think it is.

“At the same time, demand for labor has steadily cooled. The private sector added just 67,000 jobs a month, on average, for the three months through October, the lowest since the pandemic hit in 2020. While the unemployment rate held steady at 4.1% last month, the share of workers who were permanently laid off ticked up to its highest level of the year, one of several signs pointing to less demand for workers.

“It isn’t clear how long these trends-steady consumption with a slowing labor market-can last.”