The Federal Reserve is navigating a delicate situation as today’s interest rate of 5.25%-5.50% is seen as restricting economic growth and putting jobs at risk, well above the long-term “neutral” rate of 2.8%.
As inflation continues to decrease towards the Fed’s 2% target, the future direction of rate cuts will largely depend on changes in the job market.
While some experts believe the economy is merely normalizing after the pandemic, there is growing concern about whether the labor market is simply slowing down or on the verge of a more significant decline.
Fed Chair Jerome Powell and other officials have acknowledged the shift in risks, now focusing equally on employment and inflation.
As they prepare for their September meeting, there is anticipation of updated interest rate projections.
However, opinions differ, with some economists worried that the Fed may have delayed action too long, while others caution against cutting rates too quickly, which could reignite inflation risks.
(Reuters)