US Federal Reserve September Meet: The United States Federal Reserve's (US Fed) two-day monetary policy meeting is from September 17-18, and Fed Chair Jerome Powell is expected to announce the central bank's first rate cut in more than four years at a press conference later today.
Known as the Federal Open Market Committee's meeting (FOMC Meeting), the rate announcement will be at 2 pm (EST) on September 18 (12.30 am IST on September 19).
Besides the interest rate decision, Powell is also expected to release the central bank's economic projections for the US.
Senior Fed officials have indicated that a rate cut is imminent, as inflation in the US eases towards the central bank's target of 2 per cent, and as the labour market continues to cool, as per an AFP report.
Thus, the US Fed is expected to announce its first interest rate cut in over four years since 2020, months ahead of the US presidential elections scheduled in November 2024. Most watchers think the debate among Fed policymakers will be about “how big” the cut will be.
September 17-18 will see policymakers debate on whether to move the cut by 25 basis points or 50 basis points (bps), the AFP report added.
Policymakers are left with a choice: make a small 25 bps cut to ease into things or a more aggressive 50 bps cut to help the labour market despite the risk of reigniting inflation.
While analysts overwhelmingly expect the US Fed to start rate cuts in September, there is less clarity about what will follow. Many hope the central bank will illuminate their path in the updated economic forecast to be published on September 18.
The forecast will be from the Fed's 19-member rate-setting committee and will include their rate cut expectations, the report added.
Any rate cut would be significant since this is the Fed's first cut since March 2020, when it slashed rates to near-zero, in order to support the US economy through the COVID-19 pandemic.
The Fed began its rate hikes in 2022 in response to a surge in inflation, fueled largely by a post-pandemic supply crunch and the war in Ukraine; and has held its key lending rate at a two-decade high of between 5.25 and 5.50 per cent for the past 14 months, waiting for economic conditions to improve.
Now, with inflation falling, the labour market cooling, and the US economy still growing, policymakers have decided that conditions are ripe for a cut.
Further, the US is headed for its presidential elections in November 2024. A cut this week is likely a “headache” for Powell, as it comes just two months before the election clash between Kamala Harris (Democratic nominee and US Vice President) and Donald Trump (Republican nominee and former US President).
“As much as I think the Fed tries to say that they're not a political animal, we are in a really wild cycle right now,” Alicia Modestino, an associate professor of economics at Northeastern University and former senior economist at the Federal Reserve Bank of Boston, told AFP.
(With inputs from AFP)
