The forecast shows that most officials support lowering the benchmark interest rate by one percentage point or more this year, analysts: Powell can win everyone's support except Bowman, this is a complete victory.

In the week before the gathering in Washington this month, Federal Reserve officials still have different opinions on the speed of rate cuts.

The economy has not sent the usual clear signals that would prompt the Federal Reserve to take proactive measures. However, a series of apparently weak employment data, including the August employment report, led Chairman Powell to believe that the rate cut should be larger than usual to guard against rising labor market risks.

When the Federal Reserve announced its decision on September 18th, the forecast showed that most officials support lowering the benchmark interest rate by one percentage point or more this year, indicating that there will be at least one significant rate cut. A few support a 75 basis point cut, representing support for three smaller rate cuts.

However, the 12 voting members of the Federal Open Market Committee ultimately had 11 members supporting Powell's proposal to cut rates by half a percentage point to initiate an easing cycle. For the Chairman, this was a critical victory as he sought to prolong the economic expansion that many expected to have ended. The only dissenting voice was from Governor Michelle Bowman, who suggested that the rate cut should be more cautious to avoid disrupting progress in suppressing inflation.

Mark Spindel, founder of Potomac River Capital, said the Chairman always has enormous power. He said Powell could win everyone's support except Bowman, which was a complete victory, making him a more powerful Chairman now.

Jerome Powell

At the press conference after the meeting, Powell stated that the half percentage point rate cut was a strong start, making sense both economically and from a risk management perspective.

Economists say that if the economy begins to falter, the possibility of another half percentage point rate cut cannot be ruled out, as long as inflation cools down, Powell will maintain the primary task of keeping the economy close to full employment.

If labor market data disappoints again, Powell may have the opportunity to influence colleagues towards a half percentage point rate cut in the coming months. Some officials who have spoken in recent days have indicated that they may support a 0.25 percentage point rate cut in the future, but do not rule out a substantial rate cut again.

Deutsche Bank's Chief US Economist Matthew Luzzetti said that, given Powell's remarks at the Jackson Hole annual meeting and the information released at the press conference, he judges that if the labor market weakens further, Powell will be inclined to cut interest rates by another 50 basis points.

In December 2023, Powell hinted that interest rates may have peaked, while some officials still thought further hikes might be necessary. In the first quarter of 2024, inflation rose, surprising many Fed officials. Powell remained patient until he regained confidence as the pace of price pressure began to slow down again. Some members of Congress complained that he was putting the economy at risk. Ultimately, he chose a substantial rate cut as the first step.

All of these actions are based on a strong belief that high interest rates are cooling the economy rather than hurting it, and that the cost of curbing inflation on employment can be lower than many economists expect.

"Achieving these goals successfully is important for all Americans," he said in a press conference on September 18th.

Powell views this rate cut as insurance against further economic slowdown: this is risk management in action.

The Federal Reserve's decision to cut interest rates by 50 basis points this time without a crisis is not common. Some people worry that this indicates increasing concerns at the Fed about signs of economic weakness. In contrast, Powell stated that this move shows his confidence that inflation is expected to return to 2%, admitting unusually strong bias towards significant rate cuts and expressing satisfaction with this decision.

The recent employment report not only shows that employers added fewer job vacancies in August than expected, but also indicates that the pace of hiring in the previous two months was lower than initially estimated.

After a half percentage point rate cut, the Federal Reserve's benchmark interest rate still remains in a restrictive range, with several officials believing that the cost of significant rate cuts is very low.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, stated in an article on September 23 that even with a 50 basis point rate cut, the overall stance of monetary policy remains relatively tight, indicating his support for significant rate cuts.