This week, the Federal Reserve released minutes from its September Federal Open Market Committee (FOMC) meeting that resulted in policymakers leveraging their second consecutive opportunity to lower the target range for the federal funds rate after having not taken a downward action in 11 years.
And at least one economic observer is projecting that the Fed will make it three cuts in a row when the FOMC has its next opportunity just before Halloween. What might be sweet for vehicle buyers as well as other finance companies and operators that depend on that rate is it falling below the current mark of 1.75% to 2%.
Another drop would bring the rate back down to a level seen last February. The National Association of Federally-Insured Credit Unions (NAFCU) chief economist and vice president of research Curt Long offered this assessment and projection.
“Last month’s FOMC meeting occurred right at the outset of the repo market volatility which led to sustained intervention from the New York Fed as well as this week’s announcement that the Fed would resume organic growth of its balance sheet,” Long said in a news release.
“The meeting minutes still show some uncertainty on the part of the Fed as to the reluctance of some holders of excess reserves to lend those out even after rates spiked,” he continued. “On the economic front, the committee was relatively upbeat with regard to current conditions, save for weak inflation, but was growing increasingly anxious about downside risks. The main fear was that trade tensions would move from depressing firms’ investment decisions to hiring.
“On the whole, the minutes reflect an easing bias, and given that trade and political risks have not exactly abated since that meeting, NAFCU expects another 25-point cut later this month,” Long went on to say.
Fed chair Jerome Powell also made a public appearance this week but stopped short of agreeing with Long’s prediction.
Powell participated in the penultimate event in year-long series policymakers have dubbed, “Fed Listens Events.” The series has included speakers and panelists from outside the Fed, offering overviews by academic experts of themes that are central to the review. Themes that include the FOMC’s monetary policy since the financial crisis, assessments of the maximum sustainable level of employment, alternative policy frameworks and strategies to achieve the dual mandate, policy tools, global considerations, financial stability considerations and central bank communications.
“Now is a good time to conduct the review,” Powell said in his opening remarks at this week’s event hosted by the Federal Reserve Bank of Kansas City. “Unemployment is at a half-century low, and inflation is running close to, but a bit below, our 2% objective.
“While not everyone fully shares economic opportunities and the economy faces some risks, overall, it is — as I like to say — in a good place,” he continued. “Our job is to keep it there as long as possible. While we believe our strategy and tools have been and remain effective, the U.S. economy, like other advanced economies around the world, is facing some longer-term challenges — from low growth, low inflation and low interest rates.
“While slow growth is obviously not good, you may be asking, "What's wrong with low inflation and low interest rates?" Low can be good, but when inflation — and, consequently, interest rates — are too low, the Fed and other central banks have less room to cut rates to support the economy during downturns,” Powell went on to say.