Fed set to lower interest rates despite rising inflation

This article is from Monetary Policy Radar, a new product from the FT designed to help investors anticipate monetary policy decisions.

The Federal Reserve is poised to lower interest rates on September 17 in what markets expect to kick off a series of reductions that will fuel the US economy for the rest of this year.

At a time of acute political pressure on US central bankers, Fed chair Jay Powell signalled his support for a pivot towards rate cuts at the annual Jackson Hole symposium in August.

But with inflation rising on the back of Donald Trump’s tariffs and with already frothy financial markets, the danger for the Fed is that loosening monetary policy significantly will damage its inflation-fighting credibility.

The FT’s Monetary Policy Radar view therefore is that the Fed will initially be cautious, cutting rates by a quarter point in September to a range of 4 to 4.25 per cent and signalling that it remains vigilant to deal with two-sided risks — inflation and maximum employment — for the rest of this year.