The Federal Reserve is poised to implement a quarter-point interest rate cut at its upcoming meeting, despite ongoing divisions among policymakers regarding the state of the U.S. economy. The Federal Open Market Committee (FOMC) is scheduled to convene on Tuesday, and investors largely anticipate this move will mark the third consecutive decrease in borrowing costs.
A recent poll conducted by the Chicago Booth Clark Center revealed that 85% of academic economists believe the Fed will proceed with the cut due to concerns over a weakening labor market. However, opinions differ among FOMC members concerning the implications of such a decision, especially in light of inflation rates that have exceeded the central bank’s 2% target since spring 2021. Some officials, including several regional Fed presidents, have expressed reservations about the cut, citing rising inflation within the services sector.
John Williams, president of the New York Fed, has indicated support for another cut as a precaution against further labor market declines. Nevertheless, there is a significant expectation of dissent within the committee; more than half of the poll respondents predict at least two members will oppose the rate cut.
The upcoming decision is underscored by the contrasting priorities of FOMC members, with nearly half of poll respondents advocating for a stronger focus on combating inflation rather than solely prioritizing labor market stability. Economists also weighed in on the potential repercussions of a significant decline in the S&P 500 index, with a third predicting it could lead to a recession, whereas a majority felt it would cause a slowdown without a serious crisis.
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