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In July of 2019, the Federal Reserve cut federal funds rates by approximately 2%. It is now September and the Federal Open Markets Committee is meeting again next week – what can we expect to see?
Financiers are rife with speculation about what the outcome of September’s Federal Reserve meeting will be. Fed officials voted to lower interest rates for the first time since the Great Recession in 2008 on July 31st of 2019, with the intention to head off the possibility of an economic downturn as 2019 comes to an end. At that time, policymakers voted 8-2 in favor of what is considered to be a “small cut” to the federal funds rate, which currently places interest rates between 2% and 2.25%. It is expected that the outcome of this upcoming September meeting will see another cut, although no one is sure how significant it may be. Led by Fed Chairman Jerome Powell, the Federal Open Markets Committee policymakers are set to meet once again from September 17th to 18th of 2019. It’s expected that there will be significant discussion over whether the Fed will make further cuts to these interest rates, with the intention of staving off another recession that many economists have forecast for several months now.
Minutes from the July meeting show that although the committee is divided over the state of the U.S. economy, more rate cuts are likely through 2020. While this is not written in stone, there is strong speculation that further cuts will materialize. The minutes also stated, “In their discussion of the outlook for monetary policy beyond this meeting, participants generally favored an approach in which policy would be guided by incoming information and its implications for the economic outlook and that avoided any appearance of following a pre-set course,” essentially denying that there are currently plans to continue lowering the Fed’s rates in September. Despite this statement, economists across the country are predicting another rate cut after September’s meeting. The current administration has also requested that the FOMC lower rates by up to 100 basis points. Mr. Powell, who was appointed Chairman of the Fed in February of 2018 by the President, has faced criticism from the White House due to a perceived lack of action to boost the economy. In early July, President Trump called for a full percentage point reduction, and fielded the idea of increased quantitative easing – essentially, asset purchases the Fed made to pull the economy out of the Great Recession 11 years ago. At the end of July, the Committee opted to lower interest rates, and there have been multiple calls to lower the Fed further both from the White House and other legislators since then. Future policy moves by the Fed will largely be dependent on how the economy fares over the next few months, as well as continued trade talks; speculation abounds as to whether the Fed is poised to lower rates to a historical low in an effort to boost the economy and stave off another recession. Essentially, the first rate cut in July is seen “as part of a re-calibration on the stance of policy, or mid-cycle adjustment.” There are many risks that weigh on the economy, which highlights a profound need for policymakers to be flexible as well as focused on the implications of data incoming data when discussing ongoing interest rates.
Due to the variety of issues that must be addressed during this meeting, experts are waiting with bated breath to see what the next move by the Federal Reserve will be. Many expect to see further cuts to the federal funds rate, while others are urging caution; only time will tell.