Fed Officials Keep Door Open for Another Large Interest-Rate Cut

The Federal Reserve's recent decision to cut interest rates by half a percentage point has left the door open for another potential large cut in the near future. The move, announced on Wednesday, was made in response to the progress on inflation and the balance of risks, according to the rate-setting committee. This article explores the implications of this decision and the factors influencing the Fed's stance on interest rates.

The Fed's decision to cut interest rates reflects its commitment to supporting maximum employment and returning inflation to its 2 percent objective. The rate had been in the 5.25 percent to 5.5 percent range since July 2023, and the cut brings it down to the 4.75 percent to 5 percent range. This is the first time the Fed has cut rates since July 2023, when it raised the rate to combat inflation.

The rate cut is unlikely to address other drivers of affordability in housing, such as lower supply. Some asset owners may actually raise their expectations of price for those assets, potentially offsetting the benefits of lower interest rates. On other fronts, interest rates on auto loans and credit card loans are expected to come down, but the savings are likely to be modest.

The "policy uncertainty" raised by the election outcome, including the prospect of sweeping tariffs under a second Trump presidency, may overshadow the impact of any decisions by the Fed. The uncertainty about fiscal and trade policy can undermine benefits from lower interest rates, as seen in the past.

In conclusion, the Fed's decision to cut interest rates by half a percentage point has left the door open for another potential large cut in the near future. While the impact of the rate cut on the economy is mixed, the Fed remains committed to supporting maximum employment and returning inflation to its 2 percent objective. The upcoming presidential election and the associated policy uncertainty may overshadow the impact of the rate cut, as the candidates put different spins on the Fed's decision.