The Fed has decided to boldly reduce interest rates by a whopping half point instead of a piddly quarter point:
As usual, their explanation is provided in Fed-speak:
The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
On the way up they raised rates by 0.75% four separate times. But on the way down, no such luck. We have to be satisfied—nay thrilled—that they bestowed a cut of 0.5%. Meh. They should have cut a full point.
"The economic outlook is uncertain, ..."
Oh, come on, folks. Why didn't you go with "Predictions are difficult, especially about the future" ?
krugman called for i think 2.5-3.5% cut, or something in that range.
In the New York Times today, Krugman did say he'd like the Fed to cut by "200, 250, 300 basis points quite quickly", but he knew it was going to be 25 or 50 basis points this time, and he's been saying they ought to do 50, as they did today.
The Fed is projecting further cuts in the near future, and they might total 2 or 3 percent in the next year, but I think they'll continue to be gradual. They usually are. Even the 2022 hikes were composed of a several-meeting sequence of mostly half- or 3/4-point moves.
Not exactly an accurate chart since it's not like in February of this year the rate was at 5.25.
Steps would be better than connect the dots.
Real estate sellers "Yay, buyers incoming"
Real estate buyers "Eh, nope. Lower your prices. A lot."
And the Dow....drops....
DJT is up a bit, but still below $16.
If you watch DJT over several minutes, it oscillates as though there's a threshold that triggers a buy order to keep the stock from falling monotonically. But it's been sliding since the debate and the YTD return is negative, while my 403b has been earning >7%.
At least as important as the rate cut itself, they're telegraphing more rate cuts ahead. Probably another half point by the end of the year.
Oh FFS, they're conservative, and it's not like we're in some kind of deflationary crisis -- quite the contrary! 50 BPs was slightly aggressive. And as noted elsewhere, more cuts are anticipated. Even 50 is being viewed with (almost certainly faux) alarm by some commentors, "OMG it's recession, recession I tells ya!!" And it's only a target.
I still doubt that anyone will give them credit for a "soft landing." But if this hasn't been that, then I don't know what would be.
bbleh
It used to be that a 4.5% to 5.5% UI rate was somewhat normal. This allowed for people to retire, people who couldn't work at all etc etc
Now it seems like everyone panics when the UI numbers are above 3%. To me 3% UI seems to indicated a bit of an over heated economy. But then again people used to have only one or two credit cards whereas today our wallets and pocketbooks are brimming with credit cards.
Our old economic measurements seem to not be important any more.
I think (1) you're right that old benchmarks have been shown not to be that reliable -- oh well ho hum learn from experience -- and (2) more importantly, things ARE running a LITTLE BIT hot right now -- ask any small-business owner about hiring during the last year-plus -- so they were probably right to go with a 50 BP cut and indicate more coming (and maybe wrong NOT to have cut last time).
BUT, (1) the Fed's tools are LIMITED -- media myth notwithstanding, they DON'T have the Master Control Panel in their basement -- and (2) this kind of discussion is comparing the present with the perfect (no we are NOT discussing grammatical tenses, because there is NO confusion there), and I just don't see how anybody without a major political agenda can complain AT ALL credibly about the current performance of either the economy overall or of the Fed specifically.
It used to be that a 4.5% to 5.5% UI rate was somewhat normal. This allowed for people to retire, people who couldn't work at all
Neither of these categories are counted in U3, which is the headline unemployment rate. It only measures people who are in the labor force, which is defined as those who are either working, or actively seeking a job.
Whether or not something overheated isn't really a guessing game, theres no need to trust your gut or rely on decades of learned (misremembered?) wisdom.
We can actually look at a large variety of metrics to see of the economy and the labor market is overheated. And we dont see any of that.
There was certainly a long standing guess that 3-4% unemployment was harmful. The logic for this never made much sense unless you were willing to ignore the human value of the unemployed and last-to be hired set of workers. But now that weve had unemployment this low and seen that its actually very beneficial for the economy and wage earners, theres no reason to take this overheated guesstimate seriously in the future.
The chart shows ten increases, four quarter point increases, two half-point increases, and four three-quarter point increases. . A half-point decrease is consistent with the increases.
We're not, barring a major recession, going to get back down to 0.25%. Any bets on where rates settle out after the series of cuts that just started? I'm thinking rates shouldn't go below 3%, maybe 3.5%.
Since I’m about to change cities in a few months, I’ll take what I can get. I know I won’t be able to match the 3.5 of my current mortgage.
What is the Methadone or perhaps Narcan for those addicted to cheap money?
why is cheap credit a bad thing?
would we cast similar epithets at cheap food? cheap energy?
kind of silly that its framed negatively