The Outlook on Federal Funds Rate Cuts in 2023
A seasoned economist foresees a series of reductions in the federal funds rate, impacting consumer interest rates on credit cards, mortgages, and more, by the year’s end.
Federal Reserve Meeting Insights
The recently revealed Federal Open Market Committee meeting minutes from July provided insights into ongoing discussions on monetary policy and interest rates with Federal Reserve Chair Jerome Powell heading the 12-person committee. The analysis of these minutes highlighted a significant and dovish shift, signaling a willingness to adopt a lower interest rate stance to address unemployment concerns.
Economic Assessment
According to the senior economist at EY, Lydia Boussour, concerns over labor market instability were amplified by a weak July jobs report and rising unemployment rates. These indicators have bolstered the case for imminent rate cuts, especially given the consistent moderation of inflation rates.
Anticipated Rate Adjustments
Based on these observations, it is anticipated that at least three rate cuts, each of 25 basis points, will be implemented before the end of the year. Looking ahead to 2025, a total of 125 basis points in rate cuts are projected by Boussour, with the possibility of a 50-basis point cut if August job reports are discouraging.
Historical Context
Notably, the Federal Reserve had raised rates 11 times from March 2022 to July 2023, resulting in the current rate of 5.33%, the highest in over two decades. This trajectory underscores the significant shift in policy orientation towards fostering economic stability.
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