The Federal Reserve issued its third rate cut, going back to September yesterday.
The Federal Reserve’s Federal Open Market Committee (FOMC) said it decided to lower the target range for the federal funds rate by 0.25% to 4.25%-to-4.5%.
This was preceded by a September’s 0.5% reduction, to 4.75%-to-5%, which marked the first time there had been a rate cut in four years, with the last one coming in 2020, during the pandemic, as well as a 0.25% cut, to 4.5%-to-4.75% made in November.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” stated the Federal Reserve. “Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
According to the United States Department of Commerce’s Bureau of Economic Analysis (BEA) Personal Consumption Expenditures (PCE) Index, November’s inflation increased 0.2% over October, to 2.3%. While it was up over October, which was the lowest reading since February 2021. This figure remains significant, especially when compared to June 2022, when inflation peaked at 9.1%. This rise was influenced by pandemic-related factors, including supply chain issues, labor availability, and a shift in consumer spending from goods to services as the economy reopened. What’s more, the 2.3% inflation rate is well within reach of the Federal Reserve’s 2% target.
As previously reported, a recently-conducted Logistics Management reader survey of more than 100 freight transportation, logistics, and supply chain stakeholders found that 63% of respondents felt a rate cut would help, with 37% saying it would not.
Reasons cited for the former included: access to cheaper capital helping the sector and various businesses; reducing interest payments and improving cash flow; spurring housing sector growth; and improving consumer demand, among others. And reasons for the latter included: labor issues not subject to interest rates and deflation, among others.
LM columnist and supply chain consultant Brooks Bentz recently observed that he would not expect a major impact, at least immediately.
“Clearly, lower interest rates may help spur investment, which is always beneficial in high-asset-based companies that require such investment in infrastructure and equipment, he noted. “I expect there will be something of a wait-and-see attitude in terms of what happens next.”
