Economic Insights: Interest Rates, Fed Actions, and Global Impact

As the Federal Reserve prepares to start cutting its key interest rate from its current 23-year high, and a U.S. presidential election looms, many are wondering what it means for the economy. In the latest episode of the Equifax Market Pulse podcast, esteemed economists Amy Crews Cutts, President at AC Cutts and Associates LLC; Robert Wescott, Founder and President of Keybridge; and Mark Zandi, Chief Economist of Moody's Analytics provide valuable insights for businesses, consumers, and policymakers alike.

Anticipating the Fed's Next Moves

The panel also explored the potential actions of the Federal Reserve, particularly in light of the current economic conditions. With the Fed expected to be in session in mid-September, the economists weighed in on the likelihood of rate cuts and their potential impact.

Mark Zandi was clear in his expectation that the Fed should and would cut rates at the September meeting. "They will cut rates in September, barring some really unforeseen events. They should have been cutting rates, you know, months ago," Zandi asserted. He argued that the Fed has achieved its dual mandate of full employment and stable inflation, which makes the case for maintaining a high federal funds rate less compelling.

Rob Wescott, while agreeing with the need for rate cuts, also highlighted the potential delay in seeing their full effects. "Typically, it takes about six to nine months for the impact of rate cuts to be fully felt in the economy," Wescott explained. He added that while some immediate relief might be seen in areas like mortgage rates, the broader effects would take time to materialize.

Amy Crews Cutts offered a more cautious view, noting that the Fed's actions are as much about signaling as they are about the actual rate changes. "Even if they start cutting, it's not just the action of cutting the rates, but it's a commitment that they're going to be moving in that direction for the foreseeable future," she said, emphasizing the importance of the Fed's broader policy stance.

Global Geopolitical Risks and Their Economic Implications

Another significant portion of the discussion focused on global geopolitical risks and their potential impact on the U.S. economy. The economists explored various scenarios, including the ongoing conflict in Ukraine, tensions between China and Taiwan, and the broader implications of these events on global markets.

Rob Wescott expressed concern about the unpredictability of these situations, particularly in relation to Russia's actions in Ukraine. "Putin is clearly not about to be embarrassed or he's going to lash out even harder because he's being embarrassed," Wescott cautioned, highlighting the potential for further escalation and its impact on global stability.

Mark Zandi, however, took a more measured approach, arguing that while geopolitical risks are always present, they may not be as elevated as they appear. "I'm not so sure it's higher today than it has been in times past. It could very well be the case that because the media is on all of this immediately, it just feels like there's more risk out there," Zandi suggested.

Amy Crews Cutts added another layer to the discussion by pointing out the potential economic impact of disruptions in global supply chains, particularly in regions like the Red Sea and the South China Sea. "These kinds of things can be seemingly small events, but they start to add up," she warned, noting that supply chain disruptions could contribute to inflationary pressures, complicating the Fed's efforts to manage the economy.

Looking Ahead: The U.S. Election and Economic Policy

As the discussion neared its conclusion, the panelists turned their attention to the upcoming U.S. election and its potential economic implications. The conversation underscored the stark contrast between the economic policies of the leading candidates, particularly in areas like tariffs, taxation, and fiscal policy.

Mark Zandi said a second Trump administration could lead to higher tariffs, tax cuts, and increased deficits, all of which could contribute to inflationary pressures. "It's going to be some combination of higher inflation or higher interest rates," Zandi predicted, emphasizing the potential challenges ahead.

In contrast, Zandi noted that a Harris administration would likely focus on more targeted fiscal policies, including tax breaks for housing supply and higher taxes on wealthier individuals and corporations. He suggested that these policies would not add to the deficit, thereby avoiding some of the inflationary risks associated with the alternative scenario.

In Conclusion

From the impact of budget deficits on interest rates to the potential actions of the Federal Reserve and the broader implications of global geopolitical risks, this episode of the Market Pulse podcast provided valuable insights for anyone interested in understanding the complexities of the current economic landscape. As the U.S. heads into a critical election season, the stakes for economic policy are higher than ever, making these insights particularly timely and relevant.

 

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