Professor Emeritus Jeremy Siegel of the Wharton School of Finance gives his thoughts on Federal Reserve Chairman Jerome Powell’s rate cut and sets the record straight on the effect of rates on The Claman Countdown.
Federal Reserve Policymakers cut rates for the third time in a row on Wednesday, while signaling there may be just one cut next year as rates move closer to neutral levels.
The Fed cut the fed funds rate by 25 basis points to a range of 3.5% to 3.75%, and its announcement was accompanied by a summary of economic projections – commonly known as the “dot plot” – which includes policymakers’ forecasts for the labor market and inflation, as well as the outlook for the economy. interest rate cuts.
It showed that Fed policymakers’ median projection for the federal funds rate is between 3.25% and 3.5% – which would reflect just one rate cut next year. Furthermore, policymakers predict only one interest rate cut in 2027, with a median between 3% and 3.25%.
Inflation remains high at around 3%, which is well above the Fed’s 2% target and has kept policymakers from cutting rates earlier this year as the introduction of tariffs has pushed inflation rates higher in recent months. Concerns about a weakening labor market have prompted the Fed to make cuts in recent months.
FED REDUCES INTEREST RATES FOR THE THIRD TIME ON RIGHT AGAINST UNCERTAINTY ABOUT LABOR MARKET AND INFLATION
Federal Reserve Chairman Jerome Powell said monetary policy is in a neutral range, allowing policymakers to wait and see how the economy develops. (Amanda Andrade-Rhoades/Reuters)
The Fed’s latest dot plot shows that policymakers predict this Inflation will gradually decrease towards the Fed’s 2% target in the coming years.
They see the inflation index for personal consumption expenditures (PCE) falling from 2.9% at the end of 2025 to 2.6% next September and 2.4% at the end of next year. Rates are then expected to fall to 2.1% in 2027, which would be roughly in line with the Fed’s target.
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In addition, the scatter plot shows the unemployment rate will decline slightly in the coming years. It is predicted that 2025 will end with an unemployment rate of 4.5%, which would fall to 4.4% next year and 4.2% in 2027.
During the press conference after the announcement, the chairman of the Federal Reserve said Jerome Powell said the central bank’s policy has moved closer to neutral after the latest rate cut.
“The fed funds rate is now within a wide range of estimates from its neutral value, and we are in a good position to wait and see how the economy evolves,” Powell said.
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He said the Fed’s 75 basis point cuts at the end of this year have brought the economy to a point where the labor market can stabilize, and that they have seen no evidence of a potentially sharper downturn.
Powell emphasized that the Fed is “committed to 2% inflation, and we will get to 2%,” even as it faces challenges in the labor market and the impact of rate increases on inflation.
He said the Fed has made progress non-tariff inflation this year and that as rates flow through the economy and impact inflation rates next year, the Fed “is well positioned to wait and see how that plays out.”
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The Fed chairman also reiterated an oft-repeated point that the central bank’s monetary policy is not on a predetermined course, as policymakers will continue to monitor incoming economic data and be prepared to adjust accordingly.
