Inflation’s Down and the Economy’s Strong. So Why Isn’t the Fed Cutting Rates?
Inflation has been dampened and unemployment is low. Yay! The Fed’s two mandates have been achieved, and that’s why the Fed isn’t cutting rates.
But there is, of course, a “but.” Raising interest rates, back to where I think they should be, has exposed problems caused by the decade of zero interest rates and free money. Problems that have been compounded in the aftermath of the pandemic. The reality is simple and profound.
THE UNITED STATES ECONOMY IS BASED ON DEBT
If the Fed starts to lower rates before mid-year, it will be for one practical reason — to help commercial real estate developers and investors refinance their debts. The side benefit would be to boost residential real estate, but doing that risks increasing inflation, so I don’t see the Fed acting too soon. I’m sure they’re closely watching China’s real estate crisis.
https://www.npr.org/2024/01/30/1227554424/evergrande-china-real-estate-economy-property-collapse
P.S. In today’s NYTimes:
https://www.nytimes.com/2024/01/30/business/economy/fed-interest-rates.html