Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Today was the day. After months of speculation, political pressure,
Speaker 2: expert opinions, data analysis, and many hours of hand ringing
Speaker 2: by economists and policymakers, Federal Reserve Chair Jerme Powell made
Speaker 2: his move today.
Speaker 3: The Federal Open Market Committee decided to reduce the degree
Speaker 3: of policy restraint by lowering our policy interest rate by
Speaker 3: a half percentage point.
Speaker 2: The Federal Reserve is cutting interest rates by half a
Speaker 2: percentage point. It's a bigger cut than most people were expecting,
Speaker 2: and it brings rates down from about five and a
Speaker 2: half percent to just under five percent.
Speaker 3: We thought about what to do, and we concluded that
Speaker 3: this was the right thing for the economy, for the
Speaker 3: people that we serve. And that's how we made on
Speaker 3: a sosion.
Speaker 1: What just happened was a pretty big surprise.
Speaker 2: And a current reports on the economy for Bloomberg cut
Speaker 2: it interest.
Speaker 1: Rates much more than expected. And you know, somebody that
Speaker 1: only a minority of economists thought the Fed would do.
Speaker 2: What went through your mind when you heard Powell say
Speaker 2: those words, When you heard that the cut would be
Speaker 2: fifty basis points.
Speaker 1: You know, honestly, it said that the Fed is probably
Speaker 1: a little bit more nervous than people thought about the
Speaker 1: labor market. With the unemployment rate taking higher. It suggests
Speaker 1: they're confident that inflation is under control, but now they're
Speaker 1: shifting their focus and they want to move early and
Speaker 1: fast in order to ensure the labor market doesn't get
Speaker 1: any worse.
Speaker 2: Reactions have been pouring in from the markets.
Speaker 1: Rock reaction was initially surprised, quite jolted, but I think
Speaker 1: it's calmed a.
Speaker 2: Little to politicians like Vice President Kamala Harris, who called
Speaker 2: the rate cut quote welcome news in a statement, but
Speaker 2: acknowledged that prices are quote still too high.
Speaker 1: Some other Democrats, notably Senator Elizabeth Warren, who's critical of
Speaker 1: the FED, making the point that look, this is a
Speaker 1: sign to FED is a way to too long to
Speaker 1: cut and that they need to cook by more.
Speaker 2: As of five pm on Wednesday, Donald Trump, who's been
Speaker 2: critical of the FED, hasn't yet weighed in, but earlier
Speaker 2: this week at a rally, he'd called the impending rate
Speaker 2: cut political, suggesting a cut this close to the election
Speaker 2: could help Kamala Harris and her party in the election.
Speaker 2: Powell has consistently said that politics do not factor into
Speaker 2: Fed decisions. It's big news, and Enda says, as far
Speaker 2: as the economy is concerned, it's good news.
Speaker 1: That's good news that economies has reached a point where
Speaker 1: rates can come down in this kind of fashion by
Speaker 1: the fade, and the jobs market is so.
Speaker 2: Strong today on the show, the rate cut finally happened.
Speaker 2: It was a big one. So now what its effects
Speaker 2: will soon start to ripple through the US economy and
Speaker 2: the world. Which businesses and industries will feel this rate
Speaker 2: cut most, and how exactly will this impact regular households.
Speaker 2: That's today on the Big Take from Bloomberg News. I'm
Speaker 2: Sarah Holder.
Speaker 1: Well, it has been a very torture journey for.
Speaker 2: The Fed, and the current has been on the edge
Speaker 2: of his seat all year watching for when and by
Speaker 2: how much the Federal Reserve would cut rates.
Speaker 1: Remember back in January, people were talking about Fed cutting
Speaker 1: rates by March, and then March came. People said, you
Speaker 1: know what, they'll be cutting rates by June, and then
Speaker 1: June came and that didn't happen either. And here we
Speaker 1: are at September, barreling towards twenty twenty five, and the
Speaker 1: Fed have finally started to cut interest rates.
Speaker 2: Quite a long time.
Speaker 1: And with a lot of false dawnes.
Speaker 2: And now the economy embarks on the dawn of a
Speaker 2: new era. Interest rates are coming down.
Speaker 1: Well, there's something of a surprise, a bigger could, I think,
Speaker 1: than most people anticipated. And it does suggest now maybe
Speaker 1: a hint of urgency among policymakers that perhaps they are
Speaker 1: worried about what's going on in the labor market. Maybe
Speaker 1: they're seeing more softness, more deteriorations there than the average
Speaker 1: economists is seeing. Right now, it certainly suggests that they
Speaker 1: want to front load and get on with easing policy,
Speaker 1: their confident inflation is heading in the right direction. Now,
Speaker 1: it's all about the jobs market.
Speaker 2: The job market, that's really what's behind this bigger cut.
Speaker 2: And it says when rates are higher, people borrow less
Speaker 2: and spend less, companies make less money, and that slows
Speaker 2: down hiring. The labor market can soften. So to strengthen
Speaker 2: the labor market, the Fed can do the reverse lower
Speaker 2: interest rates. Lower rates make people and businesses borrow more
Speaker 2: money and buy more stuff. That means companies sell more
Speaker 2: stuff and make more money. Those companies start to grow
Speaker 2: and expand and to hire, and that creates jobs.
Speaker 1: Well, in truth, I think the economy to reach the
Speaker 1: point whereby it was crying out for lower boring costs.
Speaker 1: You know, as I say, we've seen some softening in
Speaker 1: the jobs market, but companies are not hiring at the
Speaker 1: pace that they were hiring, and the inflation story has
Speaker 1: come off the boil. So by all accounts, the economy
Speaker 1: had reached the point where it was time for the
Speaker 1: Fed to lower interest rates, and that's where we seem
Speaker 1: to be at right now.
Speaker 2: The effect of rate cuts doesn't hit all parts of
Speaker 2: the economy equally, and it says some businesses and industries
Speaker 2: will be affected more deeply than others.
Speaker 1: You're always going to look at the interest rates sensitive sectors.
Speaker 1: There's been a lot of focus on how much the
Speaker 1: housing sector respond. By the way, how will construction companies respond,
Speaker 1: How will appetite to go out and get a new
Speaker 1: mortgage at a cheaper rate respond. So that's a key
Speaker 1: part of the economy that has been gummed up by
Speaker 1: high rates. So keep an eye on what happens the
Speaker 1: housing sector.
Speaker 2: But of course, the housing market isn't just made up
Speaker 2: of construction companies and real estate agencies. For a lot
Speaker 2: of people and families, their house is their biggest investment
Speaker 2: and their biggest debt, so even a small change in
Speaker 2: interest rates can have a big effect on a mortgage
Speaker 2: loan and can mean thousands of dollars more or less
Speaker 2: in monthly payments. Enda says, the higher interest rates we've
Speaker 2: seen over the past few years have put homeowners and
Speaker 2: would be homeowners in a hard situation.
Speaker 1: It's been a tricky bind for the housing market. So
Speaker 1: under one hand, if you are a person who bought
Speaker 1: a home at very low interest rates, say in the
Speaker 1: past fifteen odd years since a financial crisis a, your
Speaker 1: mortgage cost is very low and you've built in a
Speaker 1: lot of equity in your home, so you're in a
Speaker 1: very good space. The problem is you don't want to
Speaker 1: sell your home and go out and have to get
Speaker 1: a new mortgage because it's more expensive. So that kind
Speaker 1: of side that housing market has been frozen. It means
Speaker 1: there's been less inventory coming on the market, less supply. Now,
Speaker 1: if you haven't been lucky enough to buy a home,
Speaker 1: you've obviously been facing soaring housing costs and soaring mortgages,
Speaker 1: very difficult scenario for young people. And throw in then
Speaker 1: there's this idea that there's just a shortage of a
Speaker 1: supply of housing overall. That's why housing supply is such
Speaker 1: a key part of the election campaign. At the moment,
Speaker 1: it meant that housing had grind to a hold. Now
Speaker 1: the thinking is, with lower mortgage rates, eventually that will
Speaker 1: create people to or allow people to sell their homes.
Speaker 1: Will mean more stock comes on the market, more inventory.
Speaker 1: It will encourage investors in construction companies to build homes,
Speaker 1: so more homes come on the market, and it will
Speaker 1: encourage those younger people who've been priced out of the market.
Speaker 1: They might get a mortgage and they might be able
Speaker 1: to go in and buy a home as well.
Speaker 2: How soon might we feel those ripple effects? How soon
Speaker 2: might renters feel the effects of mortgage rate cuts?
Speaker 1: For example, Well, renters are getting a raw deal at
Speaker 1: the moment. Rent had been expected to be slowing sort
Speaker 1: of more than it is by now. But in the
Speaker 1: most recent inflation data we saw an increase of zero
Speaker 1: point five percent in this so called shelter index. That
Speaker 1: was the biggest increase this year for rent, suggesting that
Speaker 1: the rent story hasn't gone away, that landlords still have
Speaker 1: pricing power to put up rent. So I think that
Speaker 1: side of things has been disappointing. It's the biggest part
Speaker 1: of the of the inflation story. And you know, one
Speaker 1: way cut won't change it overnight.
Speaker 2: So and what about consumer spending? When interest rates go down,
Speaker 2: people tend to borrow and spend more. They're racking up
Speaker 2: more on credit cards, they're taking out carlowans. What might
Speaker 2: that consumer spending bump look like this time.
Speaker 1: Well, we've already had something of a consumer spending boom
Speaker 1: over the past few years. Right with the pandemic. Everybody
Speaker 1: was cashed up, they had high household savings, so there
Speaker 1: has been something of a boom. And you know, we
Speaker 1: haven't really seen a dramatic downturn on main street. You
Speaker 1: listen to the earnings reports from the big box retailers.
Speaker 1: Of course they're saying consumers are watching their wallet a bit,
Speaker 1: but we haven't seen a dramatic downturn in the realtail space. Nonetheless,
Speaker 1: if the message to households is that mortgage rates are
Speaker 1: coming down, the cost of credit card loans coming down,
Speaker 1: well obviously that is a signal that things are going
Speaker 1: to be better in terms of what their ambitions are
Speaker 1: for buying and spending on the high street.
Speaker 2: When the FED lowers interest rates, it can mean more
Speaker 2: money in people's pockets. Mortgage rates can drop, and credit
Speaker 2: card interest rates can come down. Now, interest rates in
Speaker 2: the US don't just affect the housing market and consumer spending.
Speaker 2: They have a massive impact on the US economy and
Speaker 2: the Globalmy more on that after the break. We've been
Speaker 2: talking about today's rate cut and what effect the Fed's
Speaker 2: actions might have on the economy with endocurrent with hit
Speaker 2: housing and consumer spending. But Enda says right now he's
Speaker 2: really got his eye on small businesses and how lower
Speaker 2: interest rates, which would mean cheaper loans, might affect them.
Speaker 1: Small businesses are the backbone of the economy. They're the
Speaker 1: biggest employer in the US. They routinely complain about not
Speaker 1: just the cost of their loans, but their ability to
Speaker 1: get financing. So lower costs of boring will certainly be
Speaker 1: welcome by then. Obviously, that will boy confidence. That will
Speaker 1: inject confidence and those small business people who are hoping
Speaker 1: to invest to get a business off the ground that
Speaker 1: it can get a loan, they can manage that loan,
Speaker 1: and I can put that loan to work.
Speaker 2: That new sense of confidence will also likely ripple out
Speaker 2: to other investors that fuel startup growth, like venture capitalists
Speaker 2: that may have been squeamish about risk taking while rates
Speaker 2: were high.
Speaker 1: If they're getting nervous about putting in money into an
Speaker 1: investment at a world of very high rates given the
Speaker 1: cost of financing, well, likewise, if they think the cost
Speaker 1: of a loan six months from now is going to
Speaker 1: be cheaper, they will take another look at investments that
Speaker 1: might have passed on. So there's no doubt cheaper boring
Speaker 1: costs will be a boon for that side of the economy.
Speaker 2: And this boon for businesses could also be a boon
Speaker 2: for the job market.
Speaker 1: If companies out there are getting a signal that their
Speaker 1: loans are going to be cheaper than the otherwise would
Speaker 1: have been, they will of course realize this is an
Speaker 1: opportunity to think about investing, that this is an opportunity
Speaker 1: to think about expansion, that this is an opportunity to
Speaker 1: think about adding on staff, or at the very least
Speaker 1: not cutting staff. So you would expect to see a
Speaker 1: fillip for industrial activity. And you know, the manufacturing sector,
Speaker 1: by the way, has been one of the sectors of
Speaker 1: the economy that has kind of been sluggish, even as
Speaker 1: the rest of the economy sort of kept going pretty well.
Speaker 1: So you would expect to see that relief flowing through
Speaker 1: to that side of things.
Speaker 2: We've been talking a lot about the US and the
Speaker 2: economic effects that might be felt locally domestically, what about globally.
Speaker 2: What effects are we expecting to see in other countries.
Speaker 1: So the FED remains essential bank for the world because
Speaker 1: the dollar is the big currency used around the world
Speaker 1: to settle trade. So whatever the FED does spills over
Speaker 1: to the cost of US dollar denominated loans and bonds
Speaker 1: taken out by other governments and other companies right around
Speaker 1: the world. So it will have a ripple effect. And
Speaker 1: when you have the FED signaling that they think inflation's
Speaker 1: coming under control and they can start cutting interest rates,
Speaker 1: that takes a lot of pressure off developing economies or
Speaker 1: emerging market economies too. They can follow students sorry to
Speaker 1: bring down their own boring costs in line with the FED.
Speaker 1: So it is cyberly for the rest of the world.
Speaker 2: That sigh of relief heard around the world comes after
Speaker 2: a long period when it felt like everyone was holding
Speaker 2: their breath despite calls to rates. Earlier, Powell and the
Speaker 2: FED waited to pull the trigger until they were confident
Speaker 2: inflation was indeed getting back under control.
Speaker 3: If you go back, the policy stance we adopted in
Speaker 3: July of twenty and twenty three came at a time
Speaker 3: when unemployment was three and a half percent and inflation
Speaker 3: was four point two percent. Today, unemployment is up to
Speaker 3: four point two percent, inflation is down to a few
Speaker 3: tents above two. So we know that it is time
Speaker 3: to recalibrate our policy to something that is more appropriate
Speaker 3: given the progress on inflation and on employment moving to
Speaker 3: a more sustainable level.
Speaker 2: What will you be watching for in the next few
Speaker 2: weeks and months that might tell you whether this move
Speaker 2: came too late or just in time.
Speaker 1: I think from here the singular most important variable to
Speaker 1: keep it on is the jobs market. Let's just say
Speaker 1: inflation continues to trend in the right direction and that
Speaker 1: continues to head towards the fed's target. Let's assume that
Speaker 1: carries on. Then it's all about what's going to happen
Speaker 1: people's jobs. We know at the moment that companies have
Speaker 1: slowed their pace of hiring dramatically. We see that in
Speaker 1: the data. In fact, it was even weaker than we anticipated.
Speaker 1: Due to recent revisions. And even though we are not seeing,
Speaker 1: you know, major headlines about massive layoffs and companies around
Speaker 1: the US, we know that the unemployment rate is increasing
Speaker 1: and has been increasing steadily over the past year. So
Speaker 1: there's no doubt FED feels that now is the time
Speaker 1: to act, and everything that they do from here will
Speaker 1: be defined by what's happening in the jobs market. But
Speaker 1: if you get another week reading for jobs for the
Speaker 1: September job data, maybe for the October job data, when
Speaker 1: the FED comes back in November, you'll expect a lot
Speaker 1: of people will be anticipating get another rate cut by
Speaker 1: the FED.
Speaker 2: Then Powell said that at least right now, there's agreement
Speaker 2: from all nineteen of the voting members of the Federal
Speaker 2: Reserve that there should be more in dress rate cuts
Speaker 2: before the end of the year.
Speaker 3: And so there was a lot of discussion back and forth.
Speaker 3: I would add that all nineteen of the participants wrote
Speaker 3: down multiple cuts this year, all nineteen.
Speaker 2: Still the size and scope of these further rate cuts
Speaker 2: remain in open question, and Enda says that will depend
Speaker 2: on how the economy reacts to this rate cut. But
Speaker 2: after the last few years of pandemic induced turmoil for
Speaker 2: the US economy, and it says today's announcement marks a
Speaker 2: turning point.
Speaker 1: It's a very important moment. The US economy has suffered
Speaker 1: significantly from inflation over the past couple of years. Has
Speaker 1: been the worst inflation crisis in decades. That in turn
Speaker 1: forced the Fed to respond by raising interest rates at
Speaker 1: the fastest paced since the early nineteen eighties, and they
Speaker 1: increase rates to the highest level in more than two decades.
Speaker 1: So all of this has been serious, has had a
Speaker 1: serious material impact on the US economy. Now, the good
Speaker 1: news is that the economy held up despite all of that.
Speaker 1: People held on to their jobs in the way that
Speaker 1: they hadn't been ex back to two. Consumers are held
Speaker 1: on to their confidence and they kept spending. So there
Speaker 1: was a good, a good story underlying all of the
Speaker 1: stress in the economy. But we're now at a point
Speaker 1: where the Central Bank is basically saying they think the
Speaker 1: inflation battle has turned the corner and if everything remains
Speaker 1: equal from here, barring a shock, they can continue to
Speaker 1: bring down interest rates at his steady pace, and that
Speaker 1: would be good news for everyone. Good news not just
Speaker 1: in terms of their you know, their opportunities to get
Speaker 1: a loan or in terms of their bank account. But
Speaker 1: good news that as signals the FRED managed to tame
Speaker 1: inflation without blowing up the jobs market.
Speaker 2: I'm Sarah Holder and this is the Big Take from
Speaker 2: Bloomberg News. This episode was produced by Thomas Leu. It
Speaker 2: was edited by Stacy Vannick Smith and Cecile Dora. It
Speaker 2: was fact checked by Alex Udia. It was mixed by
Speaker 2: Blake Naples. Our senior producer is Naomi Shaven. Nicole beamsterbor
Speaker 2: is our executive producer. Sage Bauman is our head of podcasts.
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Speaker 2: We'll be back tomorrow