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the Federal Reserve announced yesterday that it
would drop interest rates by half a percentage
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Point here's what this means for people who
want to buy a home or sell a home people who
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are worried about the cost of groceries or the uh
Returns on their retirement the Federal Reserve
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is aiming to do something that historically is
very very hard to do and that is engineer a soft
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Landing a soft Landing means that they brought
inflation down without causing a recession and
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right now yesterday's decision is close as close
as we get to a declaration of Victory inflation
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has come down and we have no recession now whether
the recession is coming is a different question
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but this 50 point 50 basis point cut is their
indication that they're now taking recession
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risk very very seriously inflation they're
less worried about recession is their primary
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concern we're going to see interest rates start
to drop in time all over from mortgage rates to
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also rates that you'll be PID depositors are paid
at Banks this means it's becoming better time to
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buy homes than it has been in the past but it's
also a time when people are going to be leaving
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less money inside their bank accounts as those
returns start to come down yesterday's rate cut
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did not come as a surprise to the financial
markets I would argue that the markets have
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expected 50 basis point cut for a while and there
were arguments from certain Market followers our
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colleague Jeremy seagull has in fact advocated for
a 75 basis point cut earlier and he said recently
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he's happy that the FED went with a 50 basis point
cut I must say that many economists actually did
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not expect such a large cut the FTM survey of
us macroeconomists that came out uh a few days
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ago had 95% of the participants predicting a
cut of 25 basis points or less I'll brag that
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I was one of the two people on the survey who
said that there would be a 50 basis points cut
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and my view was based largely on the fact that
the bond market seem to be consistent with the
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behavior of the FED funds rate in light of the
recent inflation and unemployment numbers that
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would indicate a 50 basis point cut at least but I
did not think the FED would go beyond the 50 basis
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points because that would risk perhaps creating
a bit of a panic in the financial markets now why
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would fed Cod by 50 Paces points given that the
goal of inflation under 2% has not been achieved
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that's because there have been recent Tremors in
the real economy employment has not grown as fast
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as as some expected unemployment has been ticking
up ever so slightly and that is always a sign
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that the real economy is slowing and employment
is potentially presenting risks which is what J
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Powell indicated in his press conference yesterday
does it mean that we are heading for a recession
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well certainly the FED wants to avoid that and
I think some of the reaction of the markets
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yesterday to the positive surprise of Ray cut was
mixed precisely because it indicates that the FED
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is perhaps more concerned about a recession that
many have anticipated now today's again Market
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reaction is consistent again with this is good
news we can engineer soft landing and things are
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as good as it can be given the situation some
still worry that the FED is cutting too much
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to soon be given that inflation is still well
above 2% and might not slow as fast as we want
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again the FED sees risks now more on the downside
for employment than inflation let's hope they're
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right for more insight from knowledge at Wharton
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