After holding interest rates steady since last December, the Federal Reserve finally appears poised to cut rates at its meeting this month, scheduled for Sept. 16-17. Fed Chair Jerome Powell gave the markets a jolt when he hinted at a rate cut during remarks in Jackson Hole, Wyoming last month, but the question now is how big will that cut be? President Trump, who has been pushing the Fed for a rate cut for months, would like to see a 100 basis-point cut, while some analysts think Powell and Co. may be extra cautious and only do a 25-point cut.
The White House is pushing Powell to go big after what's described as his Jackson Hole epiphany. There, for the first time Powell seemed to acknowledge that tariffs are not causing runaway inflation, as some economists have been predicting since last spring. "The inflation rate is still above (the Fed's) target, but it has been above their target for awhile and they've lowered rates when it was much higher above their target than it is now," says Richard Rosso, certified financial planner. "So more economic growth and a stable PCE (Personal Consumption Expenditures index) portends to a maybe higher-than-what-was-expected rate cut."
Higher-than-expected means enough to please the markets, but probably not President Trump. "When Powell sees that PCE is pretty stable and yet economic growth is increasing, that does give him the ammunition and save-face excuse to go ahead and lower rates, and it is justified," says Rosso. "But it's just not going to be this 100 basis-point cut that the president wants."
"Today's numbers really justify more than a 25 basis-point cut, but I think you're probably looking at 50 basis points."
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