Rate Cuts coming soon – cooling inflation overshadows earlier overreactions

[Rachel, 7/11/24, Washington Post, “Inflation eased further in June, helping cement path to rate cuts”, https://www.washingtonpost.com/business/2024/07/11/cpi-inflation-fed/, accessed 7/14/2024, LR]

The risk, though, is that the Fed keeps interest rates too high for too long — essentially prioritizing the inflation fight over the job market. That delicate balance has the financial markets, economists and families nationwide eager for the Fed to cut.

“We’re very much aware that we have two-sided risks now,” Powell said. “We’re determined to balance those as best we can.”

At the Fed’s last policy meeting in June, officials penciled in just one interest rate cut this year, down from an estimate of three just a few months before. Economists don’t think officials will be ready to cut rates by the time they convene later in July, shifting attention to this year’s remaining meetings in September, November and December. (The November meeting falls during the week of the election, which could make for particularly fraught timing.)

Brusuelas said policymakers may have ultimately overreacted to discouraging data from the first few months of the year. At the time, the fear was that those reports signaled something entrenched and worrying about inflation. But with a few more months of hindsight, it looks more like typical noise.

“The overreaction took July off the table,” he said.