The Federal Reserve recently reduced its key interest rate for the first time since the Covid-19 pandemic in 2020. The Federal Funds Rate was lowered from 5.25%-5.5% to 4.75%-5%, a rate that had been maintained since the summer of 2023.
The objective of this reduction is to address inflation, potentially lowering rates for businesses that rely on credit, home buyers, and home sellers. Throughout the week, several Fed officials, including Chairman Jerome Powell, have provided insights into future monetary policy through various public speeches.
Jerome Powell, in his address to the National Association for Business Economics, indicated expectations of two additional rate cuts of 0.25 percentage points each in November and December 2024. He mentioned that the current economic conditions do not justify more substantial cuts, leading to a downturn in Wall Street.
Raphael Bostic, the President of the Atlanta Federal Reserve Bank, anticipates a half-point rate reduction in November if job growth slows more than anticipated. Failing that, he sees quarter-point reductions, which could lower the Federal Funds Rate to 3%-3.25% by the close of 2025—potentially reducing mortgage rates below 6%.
Michelle Bowman, a Fed governor, iterated her dissent regarding the Fed’s Sept. 18 decision to implement a half-point rate cut. Addressing the Georgia Bankers Association, Bowman argued that such a significant cut might spur new inflation pressures, though she agreed to a rate cut due to the Fed’s progress in reducing domestic inflation.
Lisa Cook, in a speech at Ohio State University, discussed the economic implications of artificial intelligence (AI). She posited that AI would enhance productivity but warned that benefits may not materialize swiftly or inexpensively. Cook emphasized the need for a consensus on AI regulation concerning privacy, compensation for training data, and mitigation of bias and fraud risks.
Looking ahead, Thomas Barkin, President of the Richmond Federal Reserve Bank, will speak at the 2024 WilmingtonBiz Conference and Expo in North Carolina. Barkin, who previously hesitated to endorse rate cuts, supported the September reduction. He is expected to share insights on the East and Gulf Coasts dockworkers strike and the recovery from Hurricane Helene in the southeastern U.S.
These discussions and predictions from the Fed officials signal a cautious yet deliberate approach to navigating the economic landscape amidst ongoing concerns about inflation and economic stability.
