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A senior economist expects multiple cuts in the federal funds rate (the rate banks pay that ripple out to consumer interest rates on everything from credit cards to mortgages) before the year ends.
On Wednesday, the Federal Reserve released meeting minutes for the Federal Open Market Committee meeting held on July 30 and July 31. The 12-person committee, including Fed Chair Jerome Powell, meets eight times a year to talk about monetary policy and interest rates.
Lydia Boussour, senior economist at EY, analyzed the minutes and told Entrepreneur that "there was a noticeable and dovish shift in the committee's perception." Dovish refers to a lower interest rate stance to bring unemployment down.
Federal Reserve Chairman Jerome Powell. Photo by Andrew Harnik/Getty Images
"Fed officials have become increasingly attuned to the possibility that labor market conditions could deteriorate quickly," Boussour emphasized, pointing to a weak July jobs report and an increasing unemployment rate. Signs of a labor market slowdown have "further strengthened the case" for rate cuts.
Related: CPI Report: Inflation Hits 3-Year Low, Analysts Predict Fed Will Cut Rates Next Month
Inflation was at a three-year low last month judging by the Consumer Price Index (CPI) report for July. Boussour says the CPI report, combined with moderate inflation over the past few months, gives the Fed plenty of room to recalibrate its policies.
Based on the minutes, Boussour expects three rate cuts, each of at least 25 basis points (bps) or 0.25%, before the year ends.
"[We] foresee an additional 125bps of rate cuts in 2025," Boussour said. "While we continue to expect a 25bps rate cut in September, we believe another weak August jobs report would likely put a 50bps rate cut on the table."
The Fed has increased rates 11 times between March 2022 and July 2023. The rate is currently 5.33%, the highest in over two decades.
