TechFlow news, on September 22, according to Jinshi Data, Gregory Daco, chief economist at EY, said the Federal Reserve is cutting interest rates in a "reactive" manner rather than in a forward-looking way. Data released two days after the July meeting showed the unemployment rate had risen to 4.3%, sparking concerns that the Fed waited too long to act. Although the unemployment rate declined to 4.2% in August, if it rises again over the coming months, similar concerns may reemerge. Daco stated: "Fed policymakers must adopt a robust forward-looking framework and move away from their data-dependent approach—but unfortunately, they haven't done so yet."
Another challenge facing Powell is that Wall Street expects more rate cuts than the Fed's policymakers currently project. This week, policymakers forecast two additional 25-basis-point cuts by the end of 2024 and four more cuts in 2025. Michael Feroli, chief economist at JPMorgan Chase, said he still expects the pace of rate cuts to exceed the Fed's consensus. Feroli anticipates a 50-basis-point cut at the next meeting in early November if the next two employment reports show further weakness.
There is also internal disagreement within the Fed regarding the path of rate cuts. Among voting members of the rate-setting committee, seven support an additional 25-basis-point cut by year-end, nine back a 50-basis-point reduction, and two policymakers expect no further cuts. This divergence reflects differing assessments of the economic outlook and increases the difficulty for Powell to coordinate policy. Governor Bowman voted against the 50-basis-point cut, favoring a 25-basis-point reduction instead—marking the first dissenting vote at the Fed since 2005. Daco noted: "The Fed chair (Powell) is now seen as having significant influence over the Federal Open Market Committee, having successfully convinced most officials that earlier rate cuts were optimal, but the cost is that policymakers may become more resistant to rapid cuts in the next two policy meetings."
