Fed Signals Potential Rate Cuts: A Cautious Policy Shift

Federal Reserve Governor Lisa Cook has suggested that it might soon be appropriate to lower interest rates to a more neutral level. This statement comes against the backdrop of positive developments in combating inflation and a stable labor market. According to Cook, the risks to the Fed's goals regarding employment and inflation are currently "roughly balanced." Although she sees interest rates generally on a downward path, the exact scale and timing of possible reductions depend on upcoming economic data and the overall economic situation. Cook emphasized that a neutral monetary policy—one that is neither stimulative nor restrictive—should be aimed for. After the interest rate cuts at the last two meetings, the Fed will announce its next decision in mid-December. Due to stable inflation data and cautious comments from policymakers, investors have scaled back their expectations for another rate cut at this meeting. Fed Chairman Jerome Powell recently stated that the economic situation does not signal urgency for rapid rate cuts. Cook acknowledged significant progress in disinflation but pointed out that core inflation remains elevated, indicating that the 2-percent inflation target has not yet been fully reached. According to Cook, the labor market appeared robust. Although there is a cooling in 2024 with fewer job openings and a slightly increased unemployment rate, unemployment and quit rates remain generally low. Thus, the labor market is no longer an inflationary pressure factor for the economy. Risks to employment have recently somewhat diminished.