It was no particular surprise to see the Federal Reserve cut its benchmark interest rate by half a percentage point to a range of 4.75% – 5.0%. Of the 12 voting members, only one demurred and even they voted for a quarter point reduction. Chair Powell noted “this reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%”. He might just have said that he expected a soft economic landing but central bankers don’t become central bankers by simplifying policy statements.
The European Central Bank had already cut its benchmark rate by a quarter point to 3.5% while the Bank of England (B of E) elected to maintain its rate at 5%. We do find ourselves agreeing with B of E Monetary Policy Committee Member, Catherine Mann, who commented that “structural behaviours in UK labour and product markets have systematically embedded inflation”. With government fiscal policy now likely to have a greater effect upon inflation, the B of E’s job hasn’t been rendered any easier.
