The debate over the Federal Reserve's recent 50 basis point rate cut continues, with Treasury Secretary Janet Yellen and several Fed officials weighing in. On September 26, Yellen told CNBC she believes in a soft landing path, where the labor market remains robust while inflation decreases. Despite a cooling job market and rising unemployment, the jobless rate remains low by historical standards, and inflation has significantly dropped. The final challenge in curbing inflation lies in the slow decline of house prices. However, with lowering market rents, she anticipates housing costs to fall. Based on Fed officials' comments, she foresees the Fed's policy rate dropping to a neutral level.
On the same day, Fed Governor Lisa Cook expressed her support for the recent 50 basis point rate cut decision in a speech. She believes this move reflects confidence that, with appropriate policy adjustments, the labor market can remain stable amid moderate economic growth and steady inflation reduction. The rate cut aims to counter the risk of intensifying employment downturns.
Cook emphasized that she will closely examine new data, changing outlooks, and risk balances when considering future policy paths. She noted that restoring labor market equilibrium and achieving sustained inflation targets signal a return to normalcy following economic disruptions. This normalcy, particularly in inflation, is crucial for maintaining a strong long-term labor market.
Former Fed Chair Ben Bernanke stated at an online Fidelity Investments event that if the economy slows, the unemployment rate might not sustain its current level and could rise. In that scenario, the Fed would have to respond. He predicts the Fed may cut rates by another 50 to 75 basis points this year, potentially during one of the remaining meetings. Bernanke also expects the Fed to cut rates by an additional 100 basis points next year.
Earlier this week, Fed Governor Michelle Bowman suggested a more cautious approach to cutting rates by 50 basis points. With the labor market still approaching full employment, she sees greater risks to price stability. She opposed the 50 basis point rate cut at the Fed's September meeting.
At 1:00 PM EST on September 18, the Federal Reserve announced it would lower the federal funds rate target range by 50 basis points to 4.75%-5%, marking the first rate cut in four years. According to CME Group data, as of publication, the market predicts a 52.7% chance that the Fed will lower the federal funds rate target range by 25 basis points in November, and a 47.3% chance of a 50 basis point cut.
