09/18/2024

With the Fed's Rate Cut at Hand, Debate Swirls over How Big a Move

The Fed has left the policy rate unchanged for 14 months

The Federal Reserve on Wednesday almost certainly will lower interest rates for the first time in more than four years as the U.S. central bank starts to reverse the restrictive conditions it imposed to beat back inflation, but whether policymakers opt for a half-percentage-point cut or smaller move remains up in the air.

Their choice on how they want to kick off a new easing cycle - less than two months before what is expected to be a close U.S. presidential election - likely hinges more on what signal they want to send as they pivot from the highest interest rates in a quarter of a century than about expectations for near-term macroeconomic impact, even as their worries about the job market grow.

A half-percentage-point cut - now given more than a 60 percent probability in rate futures markets - would signal a commitment to sustaining the current economic expansion and the job growth that goes along with it, something Fed Chair Jerome Powell has said is the top priority now that inflation is approaching the central bank's 2 percent target.

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