Paul Krugman, a renowned economist and Nobel Prize laureate, has urged the Federal Reserve to promptly implement rate cuts as the New York Fed’s inflation measure hits 2.06%.
What Happened: Krugman took to social media platform X to share his thoughts. He emphasized the need for immediate rate cuts, citing the New York Fed’s inflation measure of 2.06% as a key factor.
“The eagle has soft landed. The New York Fed’s measure of underlying inflation is now just 2.06 percent. The Fed should cut rates now now now,” Krugman wrote.
June’s Personal Consumption Expenditure (PCE) price index, which represents the goods and services most commonly purchased by U.S. consumers, continued to decline. This development further strengthens the case for a Fed rate cut in September.
The PCE price index, excluding energy and food items, remained stable from the previous month. However, the growth rate of personal income and spending fell more than expected, indicating a potential weakness in demand.
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Why It Matters: The call for rate cuts by Krugman comes amid growing speculation that the Federal Reserve might soon lower interest rates. Recent trends in the bond market indicate that investors are betting on a rate cut at the Fed’s September meeting.
The Fed’s preferred inflation measure, the PCE price index, has been falling consistently. In June, it rose by 2.5% annually, down from 2.6% in May, which further supports the argument for a rate cut.
Moreover, the U.S. economy has shown remarkable resilience. The Bureau of Economic Analysis recently reported a surprising real GDP growth of 2.8% in the second quarter, doubling the growth rate of the first quarter and surpassing analysts’ expectations. This robust economic performance adds another layer of complexity to the Fed’s decision-making process.
Finally, the Federal Reserve is expected to maintain its current interest rates for now, but a potential rate cut in September is on the horizon. This is due to favorable changes in U.S. inflation and a softening labor market. The Federal Open Market Committee is expected to keep the benchmark interest rate at 5.25% to 5.50% when it concludes its two-day meeting on Wednesday.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
