Why Some Economists Think the Fed Should Cut Interest Rates This Month

For some economists, July is the new September.

That is, some economists believe the Federal Reserve should begin cutting interest rates at its next meeting at the end of the month. These economists argue recent economic data is enough evidence that inflation is falling toward the central bank’s annual goal of 2%. In a recent Wall Street Journal survey of economists, 24.6% held that view.

“If the case for a cut is clear, why wait another seven weeks before delivering it?” wrote Goldman Sachs Chief Economist Jan Hatzius in a separate commentary this week.

However, only a slim percentage of economists believe a cut is likely to happen this month: 98.5% of economists surveyed by The Journal said the Fed will make its first interest rate cut sometime after the July meeting. The majority of economists believe central bankers will cut in September, a view that’s also held by financial market participants.

Making the Case for a July Cut

The Federal Reserve has held its key interest rate at a 23-year-high for the past 12 months, putting pressure on consumers and businesses, as part of an effort to cool the economy and tame inflation. Inflation trended downward since hitting its peak in June 2022, but progress has faltered some in the last year.

However, Hatzius argues, recent economic data has pointed to higher unemployment and potentially slower GDP growth, which could become an issue if the Fed lets it go unchecked for too long.

Central bankers, for their part, are keeping an eye on these factors. In fact, in recent weeks, members of the policy-making committee, including Chair Jerome Powell, have said they are keeping a close eye on the labor market to avoid unwanted spikes in unemployment that could signal a recession.