After months of speculation, we should soon know how much the Federal Open Market Committee will reduce borrowing costs. The federal funds rate has been idling at a 23-year high.
The FOMC has kept the target range of 5.25% to 5.5% for more than a year as the Fed has worked to slowly cool the economy without jarring the financial forces too hard to push the nation into recession.
The highest level of inflation since the late 1970s and early 1980s has challenged the farmland community as some producers put off expansion or big purchases, and some potential buyers delayed entering the farmland market.
The August Consumer Price Index report largely reflected what economic experts expected. CPI rose 0.2% in August, matching its mild increase in July. And that put the yearly inflation rate at 2.5%, a far more comfortable level for consumers.
We have finally reached the point of this economic recovery where forecasters believe a rate cut by the FOMC is imminent. Federal Reserve Board Governor Christopher Waller talked about the need to be able to adjust during his remarks at the University of Notre Dame on September 6th.
“Monetary policy must be nimble, so that means policymakers must be nimble also. Not Simone Biles nimble, but nimble.”
Simone Biles is one of the greatest gymnasts in the history of the sport. The Fed may not need those moves. But it may earn a gold medal performance if it successfully navigates the gradual reduction of the economy without triggering inflation.
The most recent unemployment rate showed a reduction to 4.2% for the United States, which represented a drop from 4.3% the previous month. It showed that the country likely wasn’t spiraling toward recession.
The rate showed that unemployment has been creeping up as employers pulled back on hiring, another sign of the country’s cooldown. For perspective: the August 2023 unemployment rate was 3.8%.
Waller said the labor market is a significant factor to consider as the Fed looks ahead. “There has been continued moderation in the labor market. In light of the considerable and ongoing progress toward the Federal Open Market Committee's 2 percent inflation goal, I believe that the balance of risks has shifted toward the employment side of our dual mandate, and that monetary policy needs to adjust accordingly.”
WATCH: Federal Reserve Board Governor Christopher Waller address the state of the economy at the University of Notre Dame on September 6th. See his speech here.
What will that reduction mean that Waller seemed to foreshadow with his remarks?
Many of the experts that Kiplinger’s sampled predicted a 25 bps (basis point) reduction. Some thought that it would be 50 bps.
A Reuters sample of economists predicted that the Federal Reserve will cut interest rates by 25 bps at each of its final three meetings of the year.
The meeting schedule for the remainder of the year for the FOMC looks like this:
September 17-18
November 6-7
December 17-18
Farmland owners, investors, and wannabe owners and investors will pay close attention to what happens at those meetings.
