Federal Reserve's Rate Decision: What Happened and the Economists' Predictions

Alright, let's talk about these potential rate cuts. The Fed is hinting at another one in December, but before we get too excited, let's look at the numbers.

The Labor Market's Murky Picture

The stated goal is to boost the job market. Makes sense on the surface. Lower rates, easier borrowing, more hiring, right? But the data… it's less convincing. Powell himself admitted the labor market is "somewhat softer." Softer how? We’re missing the September jobs report because of the government shutdown, which is just fantastic timing (or lack thereof). Powell says they have access to "a wide variety of public- and private-sector data," but that’s conveniently vague. What data? And why isn't it public?

We do have the Consumer Price Index (CPI). It showed inflation rose at 3% last month, which is "cooler than expected." Scott Helfstein from Global X says, "Nothing in the inflation print should stop the Fed from cutting rates next week." Okay, but should it encourage them? A 3% inflation rate isn't exactly screaming for intervention. It's not the 9.1% we saw in June 2022, that's for sure. But it’s also not a deflationary spiral.

The CME FedWatch tool puts the probability of a 0.25 percentage point rate cut at 96.7%. That's practically a done deal. A quarter-point cut would bring the benchmark rate down to a range of 3.75% to 4%. Down from 4% to 4.25%. It's the second cut this year. So, we’re talking about a cumulative reduction of maybe 0.5% by year-end—to be more exact, 0.5 percentage points.

Bank of America economists say the CPI report "should keep the Fed focused on the labor market." But here's the thing: shouldn't they already be focused on the labor market, shutdown or no shutdown? The absence of one report shouldn't dictate policy. It feels… reactive, not proactive.

And this is the part of the report that I find genuinely puzzling. The Fed's dual mandate is to keep inflation and unemployment low. Fine. But are rate cuts always the answer? It's like reaching for the same wrench every time the engine sputters.

The Ripple Effect: Who Really Benefits?

How does this affect your wallet? Credit cards and HELOCs might see some relief because they're tied to the prime rate. Mortgage rates have already dipped, hitting a one-year low of 6.19% as of Oct. 23, according to Freddie Mac. But Realtor.com's chief economist Danielle Hale notes that "further declines will depend on new developments." She also says the market has already "largely priced in" the upcoming rate cuts. So, the benefit might be… minimal.

The argument is that lower rates make it easier for businesses to expand and hire. But what if businesses aren't expanding because of, say, regulatory uncertainty or lack of demand? Throwing cheaper money at the problem doesn't fix the underlying issue. It's like giving someone a discount on gasoline when their car has a flat tire.

Let's think about this another way. Imagine the economy is a garden. Lowering interest rates is like adding water. Sometimes, water is exactly what the garden needs. But what if the soil is nutrient-poor? What if there are pests eating the plants? Simply adding more water will just create a swamp.

I've looked at hundreds of these filings, and this particular narrative is unusual. It's not that the data is wrong, per se. It's that the emphasis feels misplaced. We're focusing on a single lever (interest rates) while ignoring the rest of the economic machinery.

Rate Cuts: A Band-Aid on a Bullet Wound?

So, what's the real story? Are these rate cuts actually going to "boost the job market," or are they just a feel-good measure designed to calm the markets? My analysis suggests it's more of the latter. The Fed is reacting to perceived weakness without fully understanding the underlying causes. We're cutting rates because… well, because that's what you do when things look a little shaky. It's a reflex, not a strategy. And reflexes, as we all know, aren't always the smartest move.