Fed cuts interest rates again, fewer cuts planned next year: CEI analysis

Today, the Federal Reserve announced that interest rates will be cut by 25 basis points, with an additional note that there will be fewer cuts next year as the fight against inflation continues. CEI senior economist Ryan Young provides his analysis of the decision.

“The last mile of inflation is always the most difficult to conquer. The Fed’s latest rate cut will make it even more difficult. Its announcement that it will likely make fewer rate cuts next year is reassuring, but only barely.

“Massive deficit spending will continue when Donald Trump takes office, especially with his unwillingness to modernize entitlement programs like Social Security and Medicare. This will continue to drive inflation, and markets know this.

“Tariffs, though not strictly inflationary, can raise prices in affected goods enough to show up in inflation indicators like CPI and PCE. The uncertainty around Trump’s policy of announcing tariff changes by tweet is also unhelpful, to both the Fed and the economy.

“If a Goldman Sachs estimate is correct that tariffs will raise the CPI by 0.3 percent, then tariffs alone would increase prices as much as happened from May through August this year combined, on top of existing inflation. This would give the Fed reason to increase interest rates, not merely avoid cuts.”