Federal Reserve Plans Interest Rate Cuts, Wall Street Goes Freaking WILD
How is this bad for Biden?
Federal Reserve Chairman Jerome Powell announced yesterday that the Fed is probably not going to raise interest rates anymore to control inflation, because inflation looks to be cooling steadily now.
“Inflation keeps coming down, the labor market keeps getting back into balance and, it’s so far, so good,” Powell said after the Fed’s 19-member policy committee ended its latest meeting.
The announcement, and a Fed estimate suggesting there should be three interest rate cuts next year, led to a lot of exuberance — the rational kind, one would hope — in the stock market, with the Dow Jones Industrial Average closing at a record high and much talk that the high inflation that followed the pandemic will yield to a “soft landing” for the economy (New York Times gift link) instead of a recession.
As Powell put it, the Fed is aiming for
“a continuation of what we have seen, which is the labor market coming into better balance without a significant increase in unemployment, inflation coming down without a significant increase in unemployment, and growth moderating without a significant increase in unemployment.”
Wednesday’s meeting marked the third straight time the Fed has elected not to raise interest rates from the current 5.25 percent.
The Times said that this could be really neat for the Fed and for Powell, hooray, with a rare moment of unreserved optimism from an economist, even:
If they can nail that landing, Mr. Powell and his colleagues will have accomplished an enormous feat in American central banking. Fed officials have historically tipped the economy into a recession when trying to cool inflation from heights like those it reached in 2022. […]
“The Fed right now looks pretty dang good, in terms of how things are turning out,” said Michael Gapen, head of U.S. Economics at Bank of America.
Also too, the Times reports that December’s regular survey of “market participants” by econoboffins at MacroPolicy Perspective found that 74 percent of them now think we won’t “need” a recession to get inflation back down to the Fed’s target of two percent, as compared to September 2022’s survey in which only 41 percent thought a soft landing might happen. The Fed’s projection suggests that inflation may take a while to reach that two percent target, but with steady declines over the next couple years:
The Fed projects that the core Personal Consumption Expenditures index, its preferred inflation gauge, will end the year at 3.2%, down 0.5 percentage points from projections released in September. Fed members see it cooling to 2.4% in 2024 (previously 2.6%), then to 2.2% in 2025 (previously 2.3%); and landing at 2% in 2026.
We also like any news that counts as a nice Fuck-You to Larry Summers, who thought we’d need years of 10 percent unemployment to control inflation.
So is this Good News For Joe Biden? It certainly could be, especially if the anticipated interest rate cuts and resulting lower borrowing costs arrive early enough in 2024 for people to notice. Powell was careful at yesterday’s presser to avoid any specific promises about when those interest rate cuts might happen, but also said rate cuts shouldn’t wait too long, either.
“The reason you wouldn’t wait to get to 2% to cut rates is that policy would be too late. […] It takes a while for policy to get into the economy, affect economic activity and affect inflation.”
Also too, the Times suggests that the data may vindicate economy-watchers who said inflation was largely a “transitory” response to the economic disruptions caused by the pandemic, rather than a response to Joe Biden “spending too much” to rescue Americans from the pandemic recession:
Much of the reason inflation has moderated comes down to the healing of supply chains, easing of shortages in key goods like cars, and a return to something that looks more like prepandemic spending trends in which households are buying a range of goods and services instead of just stay-at-home splurges like couches and exercise equipment.
In short, the pandemic problems that the Fed had expected to prove temporary did fade. It just took years rather than months.
“As a charter member of team transitory, it took a lot longer than many of us thought,” said Richard Clarida, the former Fed vice chair who served until early 2022. But, he noted, things have adjusted.
Fed policies have played a role in cooling demand and keeping consumers from adjusting their expectations for future inflation, so “the Fed does deserves some credit” for that slowdown.
Not that any of that will convince Republicans who want to gut Social Security to save it, but it makes sense to us — and if cooling inflation has more to do with pandemic knots getting worked out of the world economy, then that too could be good news for Biden, since it would presumably mean US trading partners will be more able to buy our stuff, too.
Yay, cautious optimism!
Apropos of nothing we are sure, but here is Donald Trump YESTERDAY saying that if he is not elected, “we’re going to have a depression, the likes of which I don’t believe anybody has ever seen, maybe 1929, that’s what’s gonna happen …”
And yes, he said this after the stock market hit those record highs.
There’s also that time in 2020 when Trump predicted during a debate that the stock market would “crash” if Biden won.
And for your “there’s always a tweet” files, this is really too good:
[AP / CNN / NYT gift link / video via Acyn]
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The economy is cyclical. Sometimes it's up and sometimes the Republicans are in charge.
But...but...but what about prices in AIRPORT LOUNGES, hengghhh?