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 18th 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 a 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 the 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.
