Federal Reserve Likely Done With Interest Rate Cuts in the Short Term

(KNSI) – A local economist says Thursday’s interest rate cut by the Federal Reserve was unsurprising.

Professor Louis Johnston from the College of St. Benedict and St. John’s University explained to KNSI News what is influencing the thinking of the Fed’s Open Market Committee.

“The relationship between what the Fed does and inflation is that if inflation goes up, the Fed raises interest rates, and if inflation goes down, they lower them. So, since inflation has been going down, they’re lowering interest rates.”

Johnston notes that the core inflation rate, which strips out more volatile components like gasoline prices, has come down less. He expects that to keep the Fed cautious going forward. Johnston predicts that there will be no rate cut at the next meeting in December.

He also points out that consumers shouldn’t celebrate yet. The move only affects short-term borrowing. If you are trying to get a mortgage, you are more concerned with the 10-year interest rate, which has been rising since the Fed’s surprise move in September.

Johnston talks about the consensus behind that move. “President Trump has been quite clear that he’s going to extend the tax cuts that were first enacted in 2017, and what pretty much everyone thinks that’s going to mean, is that there’s going to be increased borrowing by the federal government.”

Johnston is also expecting a more contentious relationship between the White House and the Federal Reserve, but it is unclear if that will significantly impact policy.

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