A Fed Rate Cut This Week Won't Be the Start of Trend
Further reductions will require a broader deterioration in the data or an intensification of the risks facing the economy.
Federal Reserve Board Chairman Jerome Powell has a big decision to make this week.
Photographer: Win McNamee/Getty Images North AmericaThe U.S. Federal Reserve this week will take out insurance on the decade-long economic expansion and cut policy rates by a quarter of a percentage point on Wednesday. Weak business investment highlights the need for such insurance, while the solid consumer picture suggest that half a percentage point would be too much.
The Fed isn’t viewing this event as the beginning of a sustained easing cycle just yet, so more rate cuts aren’t guaranteed. A firming of business investment would take future reductions off the table after the economy expanded at a 2.1% annualized rate in the second quarter. That compares with central bankers’s 2019 estimate of 2% to 2.2% and begs the question of whether or not the data flow in general supports a rate cut.