This week, everyone is watching Washington as the central bank’s policy committee meets on Tuesday and Wednesday to decide what happens next with interest rates. After the chair’s comments at last month’s economic symposium—where he suggested a change might be coming—financial markets have been buzzing. Now, the big question isn’t whether rates will be cut, but by how much.
The committee has a tough job ahead. On one hand, the job market is starting to sputter, which usually means it’s time to lower rates to help out. But inflation has been stubborn, even ticking up a bit in recent reports, so officials are wary. The chair has often said that keeping prices stable is key to long-lasting job growth. Still, his recent remarks have led many to believe that some kind of rate cut is coming soon.
Recent data has only made people more certain. The August jobs report was weaker than expected, and wholesale prices also calmed down a bit. Put together, these signs make a rate cut look almost certain. Most traders think the committee will go with a small 25-basis-point cut, and there’s only a slim chance they’ll go bigger—like a 50-basis-point move. Plus, with the latest Consumer Price Index showing inflation rising again, a big cut doesn’t seem likely right now.
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Sources
- https://www.statista.com/topics/10024/interest-rates/
- https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
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