Next Phase of the Rate Cycle – September 2024

After 5.25 percentage points of increases in the Federal Funds rate between March 2022 and July 2023, the Fed lowered its target rate Wednesday, September 18, by 0.50%. While there was much debate on whether the Fed would lead with a 0.25% or 0.50%, they chose a more aggressive path, at least initially, of moving toward a long-term neutral rate. With inflation moderating the focus has shifted toward the Fed’s second mandate of maximum employment. There was clear softening in the labor market in both the July and August employment reports with the unemployment rate moving from a low of 3.4% in summer of 2023 to 4.3% in July. While risks to employment have increased, they have not accelerated. This is the first step in what the Fed is forecasting will be a series of interest rate cuts as they move towards a neutral policy stance.