Federal Reserve prepares for interest rate cut

The Federal Reserve Bank of New York signals an upcoming reduction in interest rates. President John Williams stated that considerable progress in lowering inflation and a cooling labor market now make it appropriate to ease monetary policy. Williams noted that the economy is in a state of equilibrium and that inflation is on track to reach a target of 2%. Consequently, it is appropriate to reduce the restrictive degree of monetary policy by lowering the target range for the key interest rate. New data from Friday show that US employers created 142,000 new jobs in August, following a downward revision to 89,000 in the previous month. The unemployment rate fell to 4.2%. Williams remarked that these figures are consistent with a cooling labor market and a slowing economy. However, he expressed a desire to examine the data more closely. The Federal Reserve is expected to consider an interest rate cut in mid-September. Chairman Jerome Powell recently emphasized that the central bank is not seeking a further cooling of the labor market. Williams expressed confidence that inflation is sustainably heading towards the 2% target, adding that the labor market is unlikely to cause price pressures in the future. Nonetheless, he noted potential risks, including a significant further weakening of the labor market and a decline in global economic growth. The main question preoccupying the Fed is the scale and pace of interest rate cuts. Powell said last month that the timing and pace of rate cuts would depend on incoming data and the overall situation. Williams did not disagree, emphasizing the importance of a flexible policy that adapts to economic developments. The Fed is also continuing to reduce the size of its asset holdings, which, according to Williams, is proceeding as planned and does not impair the policy objectives.