The US Federal Reserve is preparing to cut interest rates, with officials signaling they are ready to begin a cycle to ease pressure on households and businesses. The move comes as US presidential candidate Kamala Harris is benefiting from growing expectations that the Fed will cut rates as early as September, boosting her chances in the upcoming presidential election. As Democrats gather for the party’s national convention in Chicago, which begins on Monday, Wall Street economists confirmed that the world’s most powerful central bank is planning to begin a cycle of interest rate cuts before the end of the year.
After a month of volatility in financial markets and fears of a possible recession in the United States, most economists polled by Reuters said they do not expect an economic slowdown. They indicated that the Fed is likely to cut borrowing costs by 0.25 percentage points at each of its remaining meetings in 2024.
Regional Fed Banks: This came after the heads of the three regional Fed banks indicated their readiness to begin a rate-cutting cycle to ease pressure on households and businesses from high borrowing costs. Meanwhile, US Treasury yields rose as investors awaited the Fed’s decisions.
Minneapolis Federal Reserve Bank President Neel Kashkari said it is now appropriate to discuss a potential rate cut as early as September, given the weak labor market. “balance of risks has shifted, so discussing a September rate cut is appropriate,” Kashkari said in an interview on Monday.
Louis Federal Reserve President Alberto Musallam and Atlanta Federal Reserve Bank President Raphael Boucek. On Monday, US government debt yields fell as investors bet on the increased likelihood of the Fed cutting rates as early as next month. This comes ahead of the expected presidential election between Kamala Harris and Donald Trump on November 5.
Recent economic data has boosted her confidence in control
Mary Dudley, president of the Federal Reserve Bank of San Francisco, believes that the central bank should take a gradual approach to lowering borrowing costs. In her remarks, Dudley stressed that recent economic data has boosted her confidence in controlling inflation, and that the time is right to adjust borrowing costs, which currently range between 5.25% and 5.5%. She also stressed the importance of taking dramatic action in response to signs of weakness in the labor market, noting that the labor market, despite its slowdown, remains strong.
The speed of interest rate cuts will be a major topic at the policymakers’ meeting scheduled for later this week in Jackson Hole, where Jerome Powell, the bank’s chairman, will deliver a speech on Friday. Markets expect the Fed to cut interest rates by 25 basis points at its September meeting, the first rate cut in four years.
Investors are closely watching the Federal Reserve’s economic policy symposium, scheduled to be held in Jackson Hole from August 22 to 24, for clues about the timing of US interest rate cuts, especially after the significant fluctuations witnessed in recent economic data. According to a report published by the British, the weaker-than-expected US payrolls report, released in early August, raised fears of a recession. This prompted investors to increase their bets on imminent interest rate cuts, leading to a significant decline in global markets.
Expectations of a large 0.5 percentage point cut in September. It also helped calm investors’ concerns about the health of the economy. The newspaper quoted Mark Cabana, head of US interest rate strategy at Bank of America, as saying that he expected that:
The Federal Reserve in Jackson Hole will indicate the possibility of a cut at the next meeting, provided that progress in combating inflation continues.
What can the Jackson Hole Symposium offer?
The Jackson Hole Conference, organized by the Federal Reserve, is considered one of the prominent economic events that are held regularly. In exclusive statements to the “Sky News Arabia Economy” website, Dr. Nidal Al-Shaar, Chief Economist, explained that the Jackson Hole symposium and meetings are always characterized by seriousness and depth. During them, the global economic situation is discussed, with a special focus on the monetary policy orientations of countries, analyzing their implementation.
He expects that this year’s meetings will take a different approach, especially from the US Federal Reserve and the European Central Bank. The meetings are expected to be celebratory, with a focus on the victory of central banks in the face of high inflation rates and the success of the monetary policies followed in curbing stubborn inflation.
Al-Shaar added that other economic factors that contributed to the decline in inflation rates, such as the natural decline in the huge demand that arose during the pandemic, may be ignored. He pointed out that central banks should have predicted this decline before exaggerating in raising interest rates quickly and shockingly.
The President of the Federal Reserve Bank of San Francisco, Mary Dale, stated that recent economic data increased her confidence that inflation is under control. It stressed that it is time to consider adjusting borrowing costs from their current range of 5.25% to 5.5%. The need for a “prudent” approach in response to concerns raised by economists that the world’s largest economy is heading for a sharp slowdown that calls for a rapid rate cut.
How quickly interest rates will move down from their 23-year highs will be a central topic at the annual meeting of the Federal Reserve Bank of Kansas City, which will be held in Jackson Hole, Wyoming, later this week.
What to expect from Jerome Powell’s speech?
Fed Chairman Jerome Powell is expected to signal in his upcoming speech that it is time for more expansionary monetary policy, although he will not use the term “expansionary monetary policy” directly. Powell is also expected to avoid statements that may raise concerns in financial markets, believing that markets are well-positioned to support the concept of the Fed’s victory over inflation rates.
However, Powell is unlikely to discuss in depth the potential impacts on the US economy, or review geopolitical crises in detail. He is also expected to avoid talking about the outcomes of the US elections, preferring to focus on his role as governor of the central bank without getting involved in issues that may cause him embarrassment or difficulty in answering. In a related context, Joe Yarak, head of global markets at Cedra Markets, explained that the confirmations of the trend towards cutting interest rates that appeared after the last meeting of the Federal Reserve sparked strong reactions in the markets. Yarak added that the labor market numbers that were released later led to the belief that the Federal Reserve delayed the reduction process, which raised speculation of an exceptional reduction in the near future.
