The Fed will cut interest rates next month

The Future. Federal Reserve Chair Jerome Powell confirmed there will finally be an interest rate cut next month — the first since the pandemic began in 2020. While the move could reduce unemployment, it might also drive a new wave of inflation if the Fed overshoots. Yay.

By the numbers
Powell revealed the planned September rate cut at the annual Jackson Hole Economic Symposium.

• The real question is how large the rate cut will be, with one tool predicting a 71.5% chance of a 25-point cut and a 28.5% chance of a 50-point cut.
• Regardless, this would be the first rate cut in over four years, helping to lower the cost of borrowing money and thereby stimulate the economy.
• A key factor in Powell’s decision is the weaker-than-expected labor market, highlighted by July’s disappointing jobs report, which showed unemployment rising to 4.3% and sluggish job growth.

Rock and a hard place
A rate cut would help solve the unemployment problem, as lower interest rates tend to correlate with increased economic activity and, consequently, job opportunities. The only problem is that rate cuts are also associated with higher inflation, which is already high. The goal is to walk the tightrope between inflation and recession.

Here’s to hoping. Oh, and whatever you do, don’t look down.