The Federal Reserve cut its basic interest rate by half a percentage point yesterday, which should be the first step in steadily reducing the higher interest rates the Fed imposed in 2022 to keep inflation under control. The Associated Press explains what that’s all about:
The central bank is acting because, after imposing 11 rate hikes dating back to March 2022, it feels confident that inflation is finally mild enough that it can begin to ease the cost of borrowing. At the same time, the Fed has grown more concerned about the health of the job market. Lower rates would help support the pace of hiring and keep unemployment down.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the Fed said in a statement. “Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress.”
The Fed is likely to keep easing interest rates in coming months, doing that prudent cautious thing where the cuts could be smaller or steeper, depending on what’s happening with job growth and inflation. In either case, economists will be happy to have something new to talk about, especially if they can be dour and cautiously optimistic at the same time.
Fed Chair Jerome Powell alluded to criticism that the rate cut was long overdue, saying, “We don’t think we’re behind — we think this is timely. But I think you can take this as a sign of our commitment not to get behind.”
Powell also took his version of a victory lap, the kind where you don’t actually wave around a foam finger with “we’re number one” printed on it, or even rev your engine. “Our patient approach over the past year has paid dividends,” Powell semi-exulted, downplaying the frenzied exuberance by adding, “We’re certainly not saying ‘mission accomplished’ or anything like that.”
Also, while to normal people the rate cut indicates that inflation is under control, to Donald Trump and his weird cult of MAGA Chuds, it was a panicked move to save the floundering campaign of Kamala Harris, whose enthusiastic support in polls is also the result of a deep state conspiracy.
Trump, who appointed Powell to chair the Fed but hates him as much as anyone else he ever hired, groused during a visit to a “bitcoin pub” in New York City, “I guess it shows the economy is very bad to cut it by that much, assuming they’re not just playing politics. […] The economy would be very bad or they’re playing politics, one or the other.”
Trump, of course, constantly badgered the Fed to keep interest rates low before elections, and his toadies who wrote Project 2025 have long insisted the Fed should not have any independence from the whims of the executive branch. Unless the president is a Democrat, of course.
Then Trump held a rally in New York, where he promised to impose a 10 percent interest rate cap on all credit card debt, which would be communist if Joe Biden tried it, but it sure had the Trumpies on Twitter lapping it up. Never mind that presidents can’t just willy-nilly set the interest rates on credit cards, or that a in May, a Trump-appointed federal judge blocked a far more modest Biden administration rule that capped credit card late fees at $8 dollars. (“Yeah but Joe Biden wants to forgive student loans!” — using the already congressionally authorized Higher Education Act; and that’s blocked too now.)
At a rally yesterday in Raleigh, North Carolina, a reporter asked MAGA veep nominee and robotic replicant JD Vance what he thought about the rate cut, and the Chuds in the audience began booing even as the positronic relays in Vance’s central processor (his neural net, like the rest of him, is made of human butt hair) began formulating a reply.
REPORTER (OFF-CAMERA): Really quickly, just on the Fed cutting, it’s a very Wall Street Journally question, but the Fed cut the interest rate today by a half a percentage point, going to alleviate inflation for a lot of people. And so if you have any reaction to that?
CROWD: Boo! Boo! We hate reporters! We hate the rate cut! We hate the Fed! We just hate everything! But especially reporters! And inflation will never come down ever until Trump raises our taxes! (This may not be a verbatim transcript; more of a translation from the boo-ish.)
Vance replied, eventually, that the rate cut was too timid: “My, my, my reaction is, a half a point is nothing compared to what American families have been dealing with for the last three years.”
And the crowd cheered, because like Vance, they have no fucking idea how anything works and think that somebody should be able to simply press a reset button and instantly return prices and interest rates to where they were in the good old days when we had a pandemic recession, massive unemployment (but maybe not them!), and gas was cheaper.
Also, where the stock market went bonkers (in a positive direction) last December when the Fed simply hinted that interest rate cuts would come in 2024, the actual arrival of the rate cut was met on Wall Street with an initial surge, but then a decline as traders worried that the cut signaled trouble ahead, or they were simply frightened by a plastic bag blowing along the ground. The Dow shot up right after the announcement, but then lost ground, closing .25 percent lower than the day before, which no, is not a crash.
Traders in the week leading up to the decision increasingly hoped the central bank would cut by a half point rather than its traditional quarter-point move. They got what they hoped for, but stocks failed to hold their gains.
Then again, stocks were already rallying prior to the rate cut, so yesterday’s slight downward closing may simply reflect the market having a post-orgasmic cigarette. Either way, things look great and we are doomed.
[AP / CNN / Daily Beast / Acyn on Twitter / CNN / Kevin Drum / CNBC]
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I guess to be scrupulously accurate, the reporter at the Vance rally did get causality backwards: It's not that the rate cut will reduce inflation, but that steadily lower inflation is why the Fed cut the rate.
The Fed did a thing and now I'll spend the next couple days reading smart people explain it and I'll nod politely and go back to not understanding the Fed or how money works.