What could come after interest rate cuts this week
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Federal Reserve chair Jerome Powell. Illustration: Sarah Grillo/Axios
After nine months of standing pat, the Federal Reserve is set to offer some interest rate relief on Wednesday. The open question is what hints are on offer about what comes next.
The big picture: Rapidly deteriorating job growth has solidified support for a quarter-point interest rate adjustment among Fed officials.
- But with price pressures still elevated, some will be reluctant to indicate much more monetary easing from here.
- New quarterly projections out Wednesday will shed light on the range of opinion and how much consensus there is behind additional rate cuts this year.
Flashback: In the last round of projections, issued in June, the median official anticipated two rate cuts in the second half of the year, but there was a wide range of opinion — including seven officials out of 19 who didn't think any rate cuts would be justified.
- Since then, inflation has proceeded broadly as expected. But job creation has taken a major step down, clearing the way for more consensus among policymakers that it's time to make monetary policy less restrictive.
Yes, but: The new projections will show the balance of opinion on the Federal Open Market Committee between those who see one or two tactical rate cuts as justified and those who believe a more protracted easing cycle is warranted to deliver a jolt of monetary stimulus.
- It is also a distinct possibility that nominee Stephen Miran (if confirmed in time) will dissent in favor of a supersized rate cut, and that one or both of President Trump's appointees on the board (that would be Michelle Bowman and Christopher Waller) would join him.
- Hawkish dissents — favoring leaving rates unchanged — look less likely but can't be ruled out by the likes of Kansas City Fed president Jeffrey Schmid or his St. Louis counterpart Alberto Musalem.
What they're saying: "The vote to ease policy is unlikely to be unanimous," wrote Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, in a note. "A divided Committee means the policy statement will remain terse, giving little away about the timing and extent of further easing."
- "That usually would elevate the importance of [Fed chair Jerome] Powell's tone in the press conference, but with the end of his term as Chair in May coming into view and other FOMC members disagreeing with him more publicly, markets may be less responsive than usual to his comments," wrote Tombs.
Of note: A lot has gone down since the last Fed policy meeting on July 30.
- Two days later, new jobs numbers showed the steep step-down in job growth, Trump fired the BLS commissioner, and governor Adriana Kugler announced she was stepping down — the slot Miran is set to take.
- The clash over governor Lisa Cook's mortgages started days later.
- Powell will seek to project calm in responding to questions about those developments. As in the past, he is likely to emphasize the Fed's focus on making sound decisions based on rigorous data, independently of politics.
