Fed's big rate cut gamble risks policy error, inflation resurgence
Investing.com -- The Fed's decision to begin its rate cutting cycle with a jumbo cut in September despite believing the economy is in good shape has all the makings of another policy error as ongoing strong demand may revive inflationary pressures.
The Fed delivered a 50 basis point rate cut on Sept. 18, marking the start of its easing cycle and the first cut since March 2020. The Fed also signaled that it could deliver two further 25bps cuts this year and a percentage point cut next year.Chair Jerome Powell acknowledgement that “the U.S. economy is in good shape ...The Fed's aggressive move is premature, given the resilience of the U.S. economy.
The are several factors that could fuel persistent inflation including tight labor markets driving wage growth, ongoing supply chain challenges, geopolitical tensions impacting commodity prices, and the lingering effects of fiscal stimulus measures, the firm added.
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