BUSINESS-ECONOMY
The Fed has kept the benchmark interest rate in the range of 5.25 per cent to 5.5 per cent for more than a year now—a level that it feels is causing too much restraint on economic activity. The impending interest rate cuts to be made by the Fed are "in line" with International Monetary Fund advice that has put a premium on making sure inflation was controlled but now sees risks shifting toward the labour market, IMF economic counsellor Pierre-Olivier Gourinchas said on Friday. "What was telegraphed by (Fed chair Jerome) Powell today is very much in line with what we've advocated," Gourinchas said on the sidelines of a Kansas City Fed economic conference. "Inflation has been improving, and labour markets have shown signs of cooling... If labour markets are not contributing to inflation pressures anymore... then you might ease a little bit on cooling aggregate demand and bring (the policy rate of interest) back closer to neutral." The Fed has kept the benchmark interest rate in the range of 5.25 per cent to 5.5 per cent for more than a year now—a level that it feels is causing too much restraint on economic activity. In prepared remarks to the conference on Friday, Powell said simply that with inflation only a half-point above the Fed's 2 per cent target and the unemployment rate moving up, "the time has come for policy to adjust," remarks that crystallised the expectations for the first rate cut at the Fed's Sept. 17-18 meeting. Indeed, some economists are even expecting that the initial cut might be a larger-than-usual half-point reduction, depending on how an upcoming August jobs report turns out. Speaking in an interview, Gourinchas said the US shouldn't be "complacent" that inflation has disappeared, pointing out that service-sector prices remain on a rising trajectory and that the Fed will need to calibrate both the pace and extent of rate cuts with the incoming economic data. "There is still some upside risk to inflation," he said. Yet it was also clear the US job market was cooling, Gourinchas said, though from a position of strength and ongoing economic growth. "I don't think we are in a situation where recession is imminent" in the U.S., Gourinchas said, while the odds of a soft landing "have increased, and that remains our baseline." None
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