Mint Quick Edit | A penny for the Fed’s thoughts
Subscribe to enjoy similar stories. Even as hopes grow of the Federal Reserve cutting rates, the US central bank may have a happy problem. Economic growth just isn’t weakening enough for it to justify continued cuts.
It has brought the Fed funds rate down by three-fourths of a percentage point in this cycle. But with the labour market holding up fine, the case for more cuts isn’t too clear. To be sure, a quarter-point cut may yet come through, as its policy rate is still seen to be above the neutral rate—one where the economy grows at its potential without stoking inflation.
But estimates of this rate vary and so do judgements of what’s best for the economy. Whether a shift in US tariff and immigrant policies will raise inflationary pressures remains a matter of speculation. What’s clear is that the Fed’s commentary will be parsed for indications of its thinking more closely than usual.
The Reserve Bank of India (RBI) would be watching too, since it would impact the rupee’s exchange rate against the dollar. The US currency has strengthened of late and could rise further if the Fed finds it must hike rates in 2025. The extent to which RBI should intervene in support of the rupee may become an even harder decision to take.
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