The Federal Reserve has implemented its first cutting of the 2025 rates, widely awaited, and has reported that two other cuts are coming by the end of the year, due to the intention of concerns on the US labor market, despite the inflation remains high.
The decision on rates
The Federal Open Market Committee (FOMC) voted on Wednesday with 11 votes in favor and 1 opposite to reduce the objective interval of the reference rate to 4%-4.25%, after keeping the rates unchanged for five consecutive meetings this year. The neo-membro of the Board Stephen Miran was the only exponent to vote against the reduction of a quarter point, instead proposing a half point cut.
“The cutting of the rates by the Fed reflects the growing signals of economic slowdown and the weakening of the labor market”
Robert Lind, Capital Group economist commented.
“The growth of employment has clearly weakened and unemployment has slightly increased. However, with the inflation that remains a concern, in particular due to the impact of the duties on prices, the future path of the Fed remains in delicate balance. Probably a further loosening will follow a cautious approach and depend on the data”.
The focus on the labor market
“The demand for work has been mitigated and the recent rhythm of job creation seems to be lower than the tie necessary to keep the unemployment rate constant. I can no longer say that the labor market is very solid”
He declared the president of the Fed, Jerome Powell, at the press conference.
“The marked slowdown of both the offer and the demand for workers is unusual in this less dynamic and in some way weaker labor market. The risks for the downward for employment seem to be increased”.
The future path
The members of the FOMC have updated their economic projections in the meeting and now include two further cuts of a quarter of a percentage point this year, or one more than the provisions of June. They foresee a cut of a quarter percentage point in 2026 and one in 2027.
“The orientation of the Dot Plot indicates that the Fed will probably carry out cuts from 25 points basic in October and December, as well as in today’s meeting. The majority of the FOMC now aims to two further cuts this year, a factor that highlights how the most accommodating wing of the committee has assumed a prevalent role. In our opinion, only a strong unexpected rise in the inflation or a sudden resumption of the work market could push the FED to divert from the current training course “
Simon Dongor, Head of Fixed Income Macro Strategies of Goldman Sachs Asset Management commented.
Powell stressed that the decision to cut places monetary policy in a “more neutral” position than the previous characterizations of moderately restrictive. Looking at the prospects of further interventions on rates, Powell has shown himself cautious, stating that the Fed is now in a “meeting in the meeting”. Powell has also reported the continuous concern for the inflationary pressures deriving from the duties:
“Our obligation is to ensure that a one -off price increase does not become a persistent inflation problem.”
