Federal Reserve Interest Rate Cut Strategy Has Some Risks Attached To It

(KNSI) – The Federal Reserve announced a half-percent rate cut on Wednesday and signaled more are coming, but one local expert says the central bank has a delicate balance to strike.

St. Cloud State University Economics Professor King Banaian tells KNSI News that Chairman Jerome Powell had to try and signal there is no emergency while also acknowledging that the labor market is beginning to show some red flags.

“The Fed, on this very same meeting, issued a set of economic projections that indicated their expectations on GDP were to be solid, but they did forecast a slightly higher unemployment rate than they did in June, and it appears the Fed was swayed by that.”

Banaian adds the projections also suggest another very newsworthy cut of 50 basis points, or half percent, could occur between November and December.

If the central bank holds to future rate cuts, Banaian believes the actions may bring back inflation, pointing to the central bank’s mistakes just three years ago.

“If they were behind the curve back in ’21, thinking inflation was transitory, we could get a similar kind of story in 2025 where they’re not prepared to admit they made a mistake and cut too soon, and inflation could come back.”

Retail sales are still strong, up 2.1% in the past year. Government spending is also at historic levels. The Dow and S&P 500 Indices both hit all-time highs in Thursday trading. It is not the typical set of economic conditions where the Federal Reserve has begun easing in the past.

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