The central bank might have started cutting interest rates in late July if it had known the labor market was cooling as quickly as it has been, Federal Reserve Chairman Jerome Powell said Wednesday.
“If you ask us, if we had received the July report before the meeting, would we have cut? We might well have,” Powell said at a news conference after the central bank cut its benchmark overnight interest rate by 50 basis points, more than most analysts had expected. “We didn’t make that decision, but we might well have.”
Powell, however, said the policy decision announced by the Fed on Wednesday does not mean it is lagging; rather, he said, it is a commitment not to be.
The Labor Department’s July jobs report, released days after the Fed’s July 30-31 meeting, showed the unemployment rate had risen to 4.3% and job growth had slowed.
Although the subsequent August report showed the unemployment rate had fallen to 4.2%, it contained ample additional evidence of a slowdown.
“It seems the Fed wanted to recover after not taking action in July,” said Oscar Muñoz, an economist at TD Securities, after the latest policy decision was released.
From now on, Muñoz said, the Fed will not rush, a point Powell also stressed in his post-meeting news conference.
Federal Reserve policymakers are almost evenly split on whether they think they will need to deliver another 50 basis points of rate cuts in the final two meetings of the year, or whether they should limit themselves to less.
So far, Powell said, the labor market is strong and inflation is on track to fall toward the Fed’s 2% target; Wednesday’s rate cut, he said, is an attempt to keep it that way.
“The Fed doesn’t like to admit policy mistakes, but some of the decision to deliver a larger initial cut is likely to be undermined by the fact that it was behind on a meeting,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The September decision is a preemptive strike to increase the odds that the central bank can achieve a ‘soft landing.’”
