The Fed May Be Two Meetings Away From a Policy Mistake
A soft landing for the US economy could too easily slip away if unhelpful, noisy data delay an interest rate cut beyond September.
In the hot seat.
Photographer: Al Drago/Bloomberg
The US inflation rate, which had surged to over 9% two years ago, is now around 3%. Based on current trends, it should settle at 2.5%-3%, a range that most economists would deem consistent with financial stability, including a firm anchoring of inflationary expectations.
This good news would normally open the window for the central bank to cut interest rates when the Federal Open Market Committee, its top policy body, meets next week, given indications that the US economy is slowing more rapidly than many had expected. The Federal Reserve’s current mindset, however, means that it is more likely to limit itself to signaling the intention to lower rates when the FOMC meets on Sept. 17-18. Failing to ease policy in either July or September — an outcome that unfortunately can’t be ruled out — would constitute another policy mistake for a Fed seeking to restore its credibility after fumbling the initial response to building price pressures in 2021.