Weakest Parts of the Economy Are Hindering Rate Cuts, Too
Sectors that have been slowed by high Fed-induced borrowing costs, such as housing and manufacturing, are somewhere between bottoming and recovering.
The Fed Squeeze.
Photographer: Jon Cherry/Bloomberg
When people think about the Federal Reserve and interest rates in 2024, one common view is that economic growth and inflation remain too hot to justify rate cuts. Another is that the labor market and inflation continue to cool, and it will soon be time for rate cuts.
In deciding which of these opposing views will prevail, it’s helpful to look at the parts of the economy that the Fed has slowed most effectively. In sectors such as housing and manufacturing, the downward pressure from high borrowing costs is abating after a difficult few years. These areas are somewhere between bottoming and recovering even without Fed cuts. A meaningful easing cycle would likely create the conditions for a boom at a time when the central bank is still struggling to contain inflation — meaning any accommodation will need to wait until parts of the economy that have been less Fed-sensitive start to moderate.