Brian Jacobson, chief economist at Annex Wealth Management, talks to “Making Money” about immigration's impact on the U.S. economy.
Federal Reserve Governor Michelle Bowman On Friday, it released a statement explaining its decision to go against the central bank's decision to cut interest rates by 50 basis points.
The Federal Open Market Committee (FOMC), the policy-making body of the Federal Reserve Board (Fed), lowered the target range for the benchmark federal funds rate to 4.75% to 5% from 5.25% to 5.5%. The committee cited inflation declining toward the Fed's 2% target and noted that the labor market was strong but weakening. Federal Reserve Chairman Jerome Powell “We don't believe we are falling behind on a potential economic downturn,” he said, but the move could be seen as “a sign of our determination not to fall behind.”
In a statement after the Fed's “blackout” period ended, Bowman explained his preference for a small cut of 25 basis points. That size of cut was seen as the most likely move in a survey of economists by LSEG ahead of the decision, but rates markets had been increasingly expecting a bigger cut of 50 basis points before Wednesday.
“The U.S. economy remains strong, with solid underlying growth in economic activity and a labor market near full employment,” Bowman wrote. “Hiring appears to be slowing, but layoffs remain low. Given trend productivity growth, I believe a normalization of the labor market is necessary to hold wage growth to a pace consistent with 2 percent inflation.”
Fed cuts interest rates by half a percentage point: what you need to know
Bowman said he would prefer a small cut of around 25 basis points at the start of the rate-cutting cycle. (Photographer: Al Drago/Bloomberg via Getty Images/Getty Images)
“My reading Labor Market Data “The economy is more uncertain as measurement challenges have grown and the impact of recent immigration influxes has become inherently more difficult to assess. We are also seeing signals from continued strong growth in spending data, particularly for consumer spending, reflecting a healthy labour market,” she added.
Bowman also expressed concern that inflation is running above the Fed's 2% target. The Labor Department's Consumer Price Index (CPI), a commonly used inflation gauge, is Increased 2.5% in August Since a year ago.
Fed Chairman Powell: Policymakers point to 'artificially inflated' jobs data and revisions to rate cut decision
Ahead of the rate cut, Fed Chairman Jerome Powell signaled that policymakers don't want to wait until inflation hits 2%. (Photographer: Al Drago/Bloomberg via Getty Images/Getty Images)
“Inflation increases disproportionately affect low- and middle-income earners. Low and stable inflation “Achieving the 2 percent target is necessary in the long run to foster strong labor markets and an economy that works for everyone,” Bowman wrote.
Fed Chairman Powell says immigration surge will drive up unemployment
This is the Fed's first interest rate cut since March 2020. (Yuki Iwamura/Bloomberg via Getty Images/Getty Images)
Mr. Powell has previously suggested that Fed policymakers don't need to wait for inflation to hit its 2% target before lowering interest rates if inflation continues to move in that direction. “Waiting until inflation gets down to 2% is probably waiting too long, because the tightening, or the level of tightening, that we're currently having is still having the effect of pushing inflation below 2%,” he said in July.
Bowman said a more cautious pace of 25 basis point rate cuts would help slow inflation to the Fed's 2 percent target while “avoiding unnecessarily stimulating demand.”
Click here to get FOX Business on the go
Despite her dissenting opinions, she respects and appreciates her colleagues’ decisions, and said she “works with my colleagues to Monetary Policy “We are well positioned to achieve our goals of maximum employment and returning inflation to our 2 percent target.”
