Leading economists are reacting to the Federal Reserve’s decision to cut interest rates by 25 basis points on Wednesday, with some lauding the central bank’s independence, and others warning of difficult times ahead.
A Perceived Shift In The ‘Balance of Risks’
Economist Mohamed El-Erian noted that “all but one FOMC member backed the 25bps cut,” with a majority of the committee “now signaling two additional cuts over the remainder of this year, up from one previously.”
See Also: Fed Should Admit Its ‘Mistakes,’ Jefferies Analyst Says, Making A ‘Cogent’ Case For 75 Bps Rate Cut
El-Erian said that the rationale behind the cuts stems from a perceived shift in the “balance of risks,” as the Fed now acknowledges that “downside risks to employment have risen,” which they say outweighs the risks posed by inflation, which “has moved up and remains somewhat elevated.”
‘Stagflation Is In The Room,’ Warns Justin Wolfers
University of Michigan economist Justin Wolfers said in a post on X that the Fed’s statement on slower job growth and high unemployment amid elevated inflation had made it official, “stagflation is in the room.”
Early this month, Wolfers made a similar prediction, saying that President Donald Trump’s tariffs would fuel stagflation. He warned that Americans could get “two bad tastes at the same time,” referring to “rising unemployment and rising inflation,” as a result of Trump’s tariffs.
The Fed Has No Idea ‘Where Inflation Will Be’
Economist Peter Schiff slammed Powell for his admission that “the Fed has no idea where inflation will be in the future.” He also noted that “they just assume it will return to their 2% target in two years.”
According to Schiff, “this is not really a forecast,” while adding that “in reality,” the Fed’s assumption is just “wishful thinking disguised as a legitimate forecast.”
Last week, Schiff had pushed back against the narrative that rate cuts would help spur the labor market, saying that it would only serve to harm the working class instead.
“Rate cuts now will harm the labor market by weakening the dollar, driving up consumer prices, and pushing long-term interest rates higher,” Schiff said, in a post on X.
Former IMF Chief Economist Lauds ‘Central Bank Independence’
Former Chief Economist and Deputy Managing Director of the International Monetary Fund, Gita Gopinath, called it “a good day for central bank independence,” highlighting that “eleven out of twelve Fed voters backed the quarter-point cut.”
This comes amid the Trump administration’s escalating attacks on the Federal Reserve’s independence, most recently with an attempt to remove Governor Lisa Cook, a move now tied up in the courts.
Photo Courtesy: Leka Sergeeva on Shutterstock.com
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