HOW BIG A CUT?
The debate among policymakers on Tuesday and Wednesday this week will likely centre on whether to move by 25 or 50 basis points.
However, a rate cut of any size would be the Fed’s first since March 2020, when it slashed rates to near-zero in order to support the US economy through the COVID-19 pandemic.
The Fed started hiking rates in 2022 in response to a surge in inflation, fueled largely by a post-pandemic supply crunch and the war in Ukraine.
It 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.
Policymakers are left with a choice: Making a small 25 basis point cut to ease into things, or a more aggressive cut of 50 basis points, which would be helpful for the labour market but could also risk reigniting inflation.
“I think that in advance of the November meeting, there’s not quite enough data to say we’re in jeopardy on the employment side,” said Modestino, who was previously a senior economist at the Federal Reserve Bank of Boston.
From: channelnewsasia
Business News
