{"id":146,"date":"2025-06-17T07:45:27","date_gmt":"2025-06-17T11:45:27","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=146"},"modified":"2025-06-17T07:45:27","modified_gmt":"2025-06-17T11:45:27","slug":"slow-and-steady-a-september-rate-cut-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2025\/06\/17\/slow-and-steady-a-september-rate-cut-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"Slow and Steady: A September Rate Cut? \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"<p><em>Originally written on 8\/6\/2024<\/em><\/p>\n<p><span data-contrast=\"auto\">As we have said before, the U.S. Federal Reserve has a tremendous responsibility to stabilize the value of the U.S. dollar by sticking to its target 2% rate for U.S. inflation.\u00a0<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/www.bls.gov\/charts\/consumer-price-index\/consumer-price-index-by-category-line-chart.htm\"><span data-contrast=\"none\">The U.S. inflation rate began rising well above the 2% benchmark in the Spring of 2021 and continued to rise to a peak of 9% in the Summer of 2022. Since then, hikes in interest rates have significantly decreased the inflation rate. Nevertheless, the inflation rate has stubbornly remained above 3% since the Summer of 2023. The June 2024 measure was at 3%.\u00a0\u00a0<\/span> <\/a><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">However, the Fed has been under pressure since at least the end of last year to decrease interest rates. On Wednesday July 31, the <\/span><span data-contrast=\"none\">Fed announced it would hold rates<\/span><span data-contrast=\"auto\"> steady at 5.25%-5.50%, hinting a rate cut was possible in September if inflation indicators continued to decline. Two days later, a <\/span><span data-contrast=\"none\">weak jobs report<\/span><span data-contrast=\"auto\"> provided data likely to support a rate cut. Analysts had expected 185,000 new jobs in July, <\/span><span data-contrast=\"none\">but the Labor Department reported only 114,000<\/span><span data-contrast=\"auto\">. The unemployment rate rose to 4.3%. The Dow shed 600 points on Friday and another 1000 on Monday. A weaker economy with less job growth portends lower inflation rates, making the case for a rate cut in September or sooner.<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Our favorite indicator of future inflation is the <\/span><a href=\"https:\/\/fred.stlouisfed.org\/series\/T5YIE\"><span data-contrast=\"none\">St. Louis Federal Reserve\u2019s 5-Year Breakeven Inflation Rate<\/span><\/a><span data-contrast=\"auto\">. In its own words, it \u201crepresents a measure of expected inflation derived from 5-Year Treasury Constant Maturity Securities and 5-Year Treasury Inflation-Indexed Constant Maturity Securities. The latest value implies what market participants expect inflation to be in the next 5 years, on average.\u201d\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">When we last discussed inflation on March 15, the 5-Year Breakeven Inflation Rate was 2.39%. Since then, it has trended down and stood at 2.13% on July 31st, when the Fed announced it was maintaining rates. Over the next two days, when the weak employment report was released, it dropped to <\/span><a href=\"https:\/\/fred.stlouisfed.org\/series\/T5YIE\"><span data-contrast=\"none\">1.89% but rose to 1.91% the next trading day<\/span><\/a><span data-contrast=\"auto\">. The 5-Year Breakeven Inflation Rate has not been below 2% since January 2021.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">So, should the Fed cut rates? In our opinion, yes, but incrementally, in September. There is no reason to panic\u2014corrections in the values of equities are a normal part of an economy, and a 71k deficit in expected jobs does not mean that much in an economy with <\/span><a href=\"https:\/\/www.bls.gov\/news.release\/pdf\/empsit.pdf\"><span data-contrast=\"none\">a labor force of 168 million<\/span><\/a><span data-contrast=\"auto\">. Slow and steady wins the race.<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Originally written on 8\/6\/2024 As we have said before, the U.S. Federal Reserve has a tremendous responsibility to stabilize the value of the U.S. dollar by sticking to its target 2% rate for U.S. inflation.\u00a0\u00a0 The U.S. inflation rate began rising well above the 2% benchmark in the Spring of 2021 and continued to rise [&hellip;]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[718],"tags":[1415,1413,1416,4,7,1251,94,270,114,1414,1417,45,1019,395,6],"class_list":["post-146","post","type-post","status-publish","format-standard","hentry","category-fed","tag-5-year-breakeven","tag-breakeven-inflation-rate","tag-economic-indicators","tag-federal-reserve","tag-inflation","tag-inflation-expectations","tag-interest-rates","tag-labor-market","tag-monetary-policy","tag-rate-cut","tag-recession-risk","tag-stock-market","tag-u-s-dollar","tag-u-s-economy","tag-unemployment"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Slow and Steady: A September Rate Cut? 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