The Federal Reserve has wrapped up its latest Open Market Committee meeting, and predictably, they have opted to cut the federal funds rate by another 25 basis points, bringing the target range to 4.25% to 4.50%. This marks the third such reduction since the rate-cut cycle kicked off in September, following a period in 2022 and 2023 where rates were aggressively increased. With three meetings resulting in three cuts, the pattern is clear. However, the latest forecasts provided by the Fed suggest a slowdown in the pace of rate reductions moving forward. The Fed seems to have shifted its exclusive focus from combating inflation, but it’s not fully ready to pivot towards economic stimulation just yet.
Over recent months, CPI inflation, which at one point surged above 9.0%, has successfully been brought down to under 3.0%. Unfortunately, though, it hasn’t yet met the more ambitious target of 2%. In the meantime, unemployment remains at a historically low level, and GDP growth has maintained an average close to 3.0% for several quarters. This doesn’t exactly paint a picture of an economy that’s in desperate need of lower interest rates, at least not at the moment.
Investors and traders, however, seem to be a bit jittery about the high rate environment. Their concern is that keeping rates elevated could nudge the economy closer to a recessionary phase. From our perspective, it’s not a foregone conclusion that this scenario must play out. The situation requires careful monitoring, but there’s reason to be hopeful that cooler heads will prevail in maintaining a stable economic course.
