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Frustration is mounting as the Federal Reserve holds interest rates at their highest in over two decades. The economic impact is undeniable, with borrowing costs for mortgages, loans, and debt repayments soaring. The central bank is now deliberating a potential shift that hasn’t been considered since the pandemic’s peak: an interest rate cut.
On Wednesday, the Federal Reserve again opted to keep rates steady, offering little relief. However, the anticipation may only last for a while longer. The Fed’s next policy meeting in September could bring the change many are waiting for.
“A rate cut could be on the table in the September meeting,” said Federal Reserve Chair Jerome Powell, sending immediate ripples through the markets. Yet, Powell tempered expectations, emphasizing that a September cut is not guaranteed. “The broad sense of the committee is that the economy is moving closer to the point where it will be appropriate to reduce our policy rate,” he explained. In simpler terms, progress is being made, but September may still be too soon.
The Timeline for a Rate Cut
The earliest a rate cut could occur is during the Fed’s September 17-18 meeting. The Fed will meet twice more this year—in November and December—but expectations are dimming for multiple cuts. The central bank will likely space out any reductions, carefully monitoring the economy’s response.
Powell addressed speculation that the Fed would avoid a November cut due to the election. “We act in the best interest of the American economy, regardless of the political calendar,” he stated firmly.
Market Expectations
Despite Powell’s cautious tone, investors remain confident that a September rate cut is on the horizon. Fed funds futures data shows a growing number of investors expecting at least a quarter-point cut, with some even betting on a more aggressive half-point reduction.
What Could Trigger a September Cut?
There’s no simple formula guiding the Fed’s decision on when to cut rates. Powell outlined potential scenarios: a September cut becomes more likely if inflation declines rapidly or aligns with expectations while economic growth stays robust and the labor market remains strong. However, officials may delay the cut if inflation unexpectedly rises—similar to earlier this year.
Conversely, Powell noted that a weakening labor market or a sharper-than-expected drop in inflation could prompt the Fed to lower rates.
Is a Rate Cut in 2024 Uncertain?
While it seems improbable that the Fed won’t cut rates this year—especially with inflation nearing the Fed’s 2% target and other central banks like the European Central Bank already easing rates—it’s not impossible.
Torsten Slok, Apollo Global’s chief economist, remains skeptical, maintaining his forecast that the Fed might not cut rates at all this year. “There are still two more Consumer Price Index releases before the September meeting,” Slok told CNN. “With solid job growth and consumer spending, we think the market’s expectation of three cuts this year is misguided.”
As the September meeting approaches, all eyes will be on the data and the Fed’s next move.
