Talk of Fed Rate Cut Turns to How Big It Will Be

The Federal Reserve’s attention has been squarely focused on inflation these past few years. But as it seeks to execute a soft landing following all the post-pandemic tumult, the central bank is looking to the other part of its mandate. With several reports, including August job numbers, suggesting the US labor market is losing steam, Fed watchers are wondering if the Fed will make a bigger-than-expected interest-rate cut when it meets later this month. The most recent jobs report further affirmed expectations for a cut, so the big question now is how much. For Fed Governor Christopher Waller, “the balance of risks has shifted toward the employment side of our dual mandate,” adding that “policy needs to adjust accordingly.” In some corners of Wall Street, traders are again putting bets on the Fed opting for a 50-basis-point cut (which looked like wishful thinking a month ago) instead of the widely expected 25-point reduction.

Though industries like tech and finance have been engaged in mass firings, the broader employment market continues to look stable. But Fed Chair Jerome Powell likely recognizes that many companies are putting off expansion plans amid high borrowing costs, not to mention uncertainty surrounding November’s presidential election. Inflation has continued dropping, but residual pain and suspicions of price gouging have many Americans wondering how the two presidential candidates stack up on their economic proposals. For economists at Goldman Sachs, Donald Trump’s stated policies, including new tariffs, will damage American growth despite pledges of tax cuts (which are up to Congress anyway). Conversely, a victory by Vice President Kamala Harris, the economists said, would likely usher in a small bump to gross domestic product.