No Case for More Jumbo Rate Cuts by the Fed, Strategists Say

The Federal Reserve's recent rate cut has sparked debate among strategists, with many arguing against further jumbo rate cuts. The slowdown in inflation, robust employment figures, and the Fed's quantitative tightening program are among the factors influencing this stance. This article explores these aspects and their impact on the Fed's rate cut decisions.

Inflation has been a key concern for the Fed, but recent trends suggest a slowdown. The annual inflation rate, as measured by the Consumer Price Index, has been declining since its peak in June 2022. This slowdown, coupled with expectations of a further decrease, may deter the Fed from implementing additional rate cuts. The Fed's dual mandate of maximum employment and stable prices is likely to be influenced by this trend.


Employment figures and economic indicators also support the argument against further jumbo rate cuts. The unemployment rate has been hovering around 4.2%, a level typically considered full employment. The labor market's resilience, despite the Fed's tightening campaign, suggests that additional rate cuts may not be necessary. Furthermore, the Fed's recent rate cut was an atypical big cut, aimed at recalibrating policy rather than preventing a recession.


The Fed's quantitative tightening program, which involves reducing its bond holdings, may also impact the decision to cut rates further. While the Fed approved the rate cut, it maintained the quantitative tightening program. This dual approach could mitigate the effectiveness of rate cuts, as quantitative tightening reduces the money supply. Strategists may argue that further rate cuts could undermine the Fed's efforts to control inflation through quantitative tightening.

Global economic conditions and central bank actions also play a role in the Fed's rate cut decisions. The interconnectedness of global financial markets means that the Fed's actions can have spillover effects on other economies. Recent rate cuts by other major central banks, such as the Bank of England and the European Central Bank, may influence the Fed's decision-making process. However, the Fed's primary focus remains on domestic economic conditions and its dual mandate.

In conclusion, the slowdown in inflation, robust employment figures, the Fed's quantitative tightening program, and global economic conditions suggest that there is no case for more jumbo rate cuts by the Fed. Strategists' arguments against further rate cuts highlight the need for the Fed to consider a range of factors when making monetary policy decisions. The Fed's ability to balance its dual mandate and respond to changing economic conditions will be crucial in the coming months.