How the Fed will decide the next rate cut

It has been two weeks since the Federal Reserve decided to cut its key interest rate for the first time since 2020 during the Covid-19 pandemic.

The decision brought the Fed’s Federal Funds Rate to 4.75% to 5% from 5.25% to 5.5%, a level that had been in place since the summer of 2023.

The hope is that progress in inflation will lower rates for everyone, helping businesses dependent on the cost of credit, home buyers, home sellers and others.

This week, many Fed officials, including Chairman Jerome Powell, have offered hints in speeches about what’s to come.

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Here’s a quick summary.

Jerome Powellspeech at the National Association for Business Economics, Monday. Powell said he saw two more rate cuts in 2024 – 0.25 percentage points at meetings in November and December. The economy is in good shape, he told the group, meeting in Nashville. And bigger cuts don’t seem warranted, he said. Wall Street sold off on the news.

Rafael Bosticpresident of the Federal Reserve Bank of Atlanta. He sees rates falling by half a point in November if job growth shows signs of slowing more than expected. Otherwise, he believes quarter-point cuts are appropriate in a campaign that would lower the federal funds rate to 3 percent to 3.25 percent by the end of 2025. That could translate into mortgage rates well below 6%.

Michelle BowmanFed governor, speaking at the Georgia Bankers Association meeting in Charleston on Monday, September 30, SC Bowman was the only dissenter on the Fed’s September 18 decision. She opposed the half-point cut, believing it was too much and could generate new inflationary pressures. She advocated a rate cut given the Fed’s success in reducing domestic inflation.

Home construction in Tucson, Arizona in September. Anyone involved in residential real estate is hoping for lower mortgage rates to boost sales.

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Lisa Cook, governor Fed. With a speech at Ohio State University on Tuesday, October 1. Cook spoke about the potential and concerns of artificial intelligence. She says AI will ultimately boost the economy because so many memory-based tasks can be automated and productivity will improve. But she cautioned against betting that the benefits will come quickly and cheaply. And she said that “a consensus needs to be reached on the benefits and costs of regulating the use of AI in the areas of privacy, training data compensation, perpetuation and amplification of bias and fraud.”

More economic analysis:

• Fed offers big rate cut, signals focus on cooling labor market
• Fed Dot Plot is more important than a rate cut
• What Will Drive the S&P 500 This Fall?

Next Wednesday:

Thomas Barkinpresident of the Federal Reserve Bank of Richmond, at the 2024 WilmingtonBiz Conference and Expo in North Carolina. He was late to cut rates. But he supported the September rate cut decision. He can offer some thoughts on the dockers’ strike on the East and Gulf coasts and how long it will take the US Southeast to recover from the damage caused by Hurricane Helene.

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