A Dovish Fed Would Be Nothing to Cheer
The central bank may be in the unenviable position of cutting rates because the economy is weakening, not because inflation has been whipped.
Careful what you wish for.
Photographer: Chip Somodevilla/Getty Images North AmericaThe Federal Reserve kept benchmark interest rates unchanged on Wednesday but edged closer to a resumption of cuts, perhaps as soon as the next monetary policy meeting in mid-September. Keep the champagne on ice; the central bank’s growing dovishness should have all of us concerned.
Unlike in late 2024 when a benign environment for inflation gave policymakers the confidence to lower the target for the federal funds rate three times, from 5.50% to 4.50%, this time the easing will be in response to economic weakness that typically leads to job losses and rising unemployment. The Fed suggested as much, acknowledging in a statement that “growth of economic activity moderated in the first half of the year.” That’s a clear downgrade from just six weeks ago, when it said the economy “has continued to expand at a solid pace.”