The Fed’s much-anticipated 25-basis-point rate cut Wednesday was accompanied by signals that members remain calm about the economy’s direction, economists said.
Federal Open Market Committee members included Stephen Miran, who Trump nominated and was sworn in just before the meeting began Tuesday. During the news conference, reporters asked Powell about Miran’s sole dissenting vote for a 50 bps cut.
“There wasn’t widespread support for a 50 basis point cut at this meeting,” Powell said.
Powell downplayed disagreements among committee members, saying the committee reflects the wide range of views that should be expected given “unusual” economic conditions.
Mike Fratantoni, chief economist for the Mortgage Bankers Association, said projections of committee members show more than half expect two additional cuts in 2025 and one more in 2026.
“The strong vote for the 25-basis-point cut suggests that members, while acknowledging that downside risks to the job market have increased, are not panicking about the state of the economy,” Fratantoni said.
Curt Long, chief economist for America’s Credit Unions, said even as the Fed lowered rates a notch, members’ “outlook for growth and the labor market strengthened.”
“Chair Powell termed the committee’s decision a ‘risk management cut,’ which may suggest less urgency to ease policy going forward. Regardless, borrowers will be pleased with today’s actions,” Long said.
Half of FOMC members said they expect rates to end the year at 3.6%, which is lower than the median projection made in June of 3.9%. They said they expect rates to fall further over the next two years to 3.4% by December 2026 and 3.1% by the end of 2027. Both years are 20 to 30 basis points lower than their June projections.
Members said they expect unemployment, which rose slightly in August to 4.3%, to rise to 4.5% by December, the same as they predicted at their June meeting.
Powell said the supply of labor has been cut by lower immigration, which has been offset by labor demand falling because of weaker economic growth. He called the result a “curious balance” that has allowed the unemployment rate to remain relatively low.
After December, they said they expect GDP to rise and unemployment and inflation to fall over the next two years. They said they expect their much-watched core PCE inflation to reach their 2% target by the end of 2028. In June their longest-range core PCE forecast was 2.1% by the end of 2027, which they maintained in the current report.
Powell estimated tariffs account for about 30 to 40 bps of the current 2.9% core PCE inflation rate. “The pass through into inflation has been slower and smaller” than many expected, he said.
Meanwhile, Fratantoni said mortgage rates, which follow long-term bond rates, reached their lowest point for the year last week, spurring a strong jump in refinance activity.
“If mortgage rates hold at these levels,” he said, “origination activity will be boosted, both for homeowners who purchased in the last three years and can realize considerable savings at these rates, and for potential homebuyers, who now have one more reason to look for a home, in addition to increasing housing supply in many markets.”
The average federal funds rate was 1.58% in February 2020 on the eve of the COVID-19 pandemic.
The Fed then cut rates to near zero, where they remained until worries about inflation caused the Fed to begin raising them in March 2022. They reached a high of 5.33% from January 2023 through August 2024.
The Fed cut rates from September through December 2024, but they have been stuck at 4.33% since January.
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
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