This week’s policy rate cut by the Fed sends a clear signal about where its priority lies. “Inflation is higher than where they would like,” said Indrani De, head of global investment research at FTSE Russell, in an interview this week. “But given that it has come down so significantly, it is not the burning crisis it was two years back, or immediately post-Covid. Now they are more concerned about the labour market and the underlying economy.”
A 2% inflation-target is central bank orthodoxy, but the U.S. and other countries find themselves in a tricky environment right now. It’s a whole lot easier to get inflation down from 3.5% to 3% than it is to go from 2.5% to 2%. Those last few basis points can turn weak economic growth negative if they overstep.
“This is the trade-off for the Fed,” said De. “Which is the higher-priority goal seems to have shifted in the last couple of months, and that obviously…
