By AP Economics Writer Christopher Al Gerber
WASHINGTON (AP) – Unemployment rates drop and more officials want to see how new policies from the White House will affect the economy, making it a point to further cuts in the Federal Reserve this year. The probability fell last week.
At the December meeting, Fed officials painted pencils for two interest rate cuts this year, but economists and Wall Street investors are increasingly skeptical, predicting that there will be no cuts this year at all. Some people do. On Friday, Morgan Stanley economists expect a fee cut in 2025, with investors expecting only one in July, according to futures market pricing. He said.
Less reductions could translate into higher mortgage rates and higher costs to borrow money from anything from cars to credit cards. Still, mortgage rates are closely tied to yields on 10-year Treasury bonds, which could move independently of the Fed’s actions.
The expectations for the shift come as Chairman Jerome Powell heads to Capitol Hill this week for two days of testimony before a House and Senate committee that oversees the central bank and financial industry. The Fed’s chair is required by law to appear before Congress twice a year.
Members of Congress may encourage him to cut his fees more quickly. He could also be grilled about issues that have achieved a higher profile under the Trump administration, including crypto regulations, banking regulations and “banking-free” claims.
Banking is the practice of banks closing customer accounts because they believe that banks pose financial, legal, or reputational risks to them. Some crypto executives accused Biden management regulators of pressured financial companies to target industries to leave the bank.
Regarding interest rates, Fed officials recently proposed that after three cuts in key rates at the end of last year, it has dropped from a two-year height of 5.3% to about 4.3%. , although there is no specifying how long it will last.
On Friday, Fed Gov. Adriana Kugler said the labor market is “stable” and “gives a little time to make some decisions.” She said inflation has been “side-down” since the fall, exceeding the 2% target.
She added that potential policy changes from the Trump administration have led to uncertainty in their outlook for the economy. Economists say widespread tariffs and the deportation of migrants that Trump has promised could boost inflation. Others argue that Trump’s deregulation policies can lower prices by increasing supply.
“The careful and careful step is to keep the (Fed key) rate for a while,” Kugler said. “Given the fact that we haven’t achieved our 2% target, given the solid economy, there may be uncertainties and other factors that could be pushing inflation up. Considering the fact that.
Separately, Austan Goolsbee, president of the Federal Reserve Chicago chapter, said in an exclusive interview with the Associated Press on Friday that he expects central bank rates to be lower in 12 to 18 months than they are now. I did. However, he also said it makes sense for the Fed to take a slower approach as it approaches the Fed approaches closer to the point where it could stop slowing down.
He also said the tariff outlook has put a little muddy water for the Fed in the coming months. Tariffs can cause a one-off rise in prices, but they do not necessarily cause ongoing inflation.
As a result, Goolsbee said Fed officials need to sort out the price increases that occur to determine whether it is a one-off change or reflects sustained inflationary pressures.
“It’s not that easy, and it’s going to take some time to figure it out,” he said. “We still have to wait for the dust to be cleaned.”
Other officials also suggested that it would take time for the Fed to decide what steps to take next.
Rory Logan, president of the Fed’s Dallas chapter, said Thursday that in “some scenarios,” the Fed may soon cut interest rates.
Even if inflation approaches the 2% target, she added, it doesn’t necessarily mean the Fed should “cut off immediately.” Instead, she said, the Fed’s key rates may already be approaching levels that do not limit or stimulate growth, as the economy remains mostly healthy and employment-held.
The government said Friday that employers added solid jobs last month, but the unemployment rate has fallen to 4% for the second straight month, marking its historically pretty low. Employment in November and December was revised much higher.
Stable employment and mostly healthy employment markets suggest that the Fed has less urgent need to lower borrowing rates. It took a sharp half-cut in September after weak employment stumbled the economy and possibly spurred a recession.
Jobs “strengthens our confidence that the Fed’s disconnection cycle is over,” Bank of America economists wrote in a note Friday.
