Should the Federal Reserve cut rates next month?

Federal Reserve Chair Jerome Powell recently opened the door for the central bank to cut rates next month.

Powell had previously cited risks of inflation from tariffs and a weakening labor market as reasons for not lowering rates. “The balance of risks appears to be shifting,” he said at a conference in Wyoming.

President Donald Trump has been calling for interest rate cuts for most of his second term. Some experts, and other Federal Reserve officials, have cautioned against cutting rates because it could limit the Fed’s tools if a major economic downturn happens.

Question: Should the Federal Reserve cut rates next month?

Economists

James Hamilton, UC San Diego

YES: The latest data show a significant slowdown in new jobs, and high interest rates are weighing on real estate. Many of us feared that tariffs would lead to much higher inflation. That hasn’t happened yet, though it still could. Given the current balance of risks, I would like to see the Fed lower its main interest rate by 0.25% at the next meeting. I would wait for more data after that before deciding on the next step.

Caroline Freund, UC San Diego School of Global Policy and Strategy

YES: Provided there are no major surprises in inflation and jobs data. The main rationale for waiting is potential price effects from tariffs, but that concern is overstated. Imports account for just 11% of U.S. GDP and if tariffs are passed through to prices, it is a one-time effect. A 25-basis-point cut will have only a marginal effect on the economy and keep the Fed from being behind the curve should current employment and inflation trends continue.

Kelly Cunningham, San Diego Institute for Economic Research

NO: Interest rates are simply the price of borrowing money. Household and corporate debt remain at all-time highs. Interest rates, price of credit and flow of capital should be controlled by supply and demand, not centrally commanded by small committee of bankers and economists or popularity seeking politicians. Effects of lower short-term interest rates will require quantitative easing, inverting yield curve as long-term rates fall, inflation spikes and U.S. dollar further plummets as reserve currency.

Alan Gin, University of San Diego

NO: While employment growth has slowed, it is uncertain whether the slowdown will dampen the inflationary impacts of the increased tariffs. The Yale Budget Lab estimates that the tariffs will add 1.8% to inflation in the short run and 1.5% in the long run. That would put inflation near or above 4%, which is double the Fed target. This factors in lower GDP growth and higher unemployment. Lowering interest rates at the next meeting could lead to an even higher spike in inflation.

David Ely, San Diego State University

YES: The latest data released by the BLS indicates that the U.S. labor market is weaker than thought. The July estimate and the large downward revisions to the May and June numbers indicates employment is growing at a sluggish rate. The Federal Reserve still needs to worry that tariffs will push prices higher for consumers and businesses. But a weak labor market poses a more significant risk to the economy at the moment.

Ray Major, economist

YES: In response to inflation hitting 7%, the Fed raised rates to slow inflation. That job is done. With inflation now at 2.7%, it is time to start giving the average American a break on their home mortgages, car loans and credit cards. Lowering interest rates would also stimulate economic growth, create more jobs and boost the economy. Right now, the Fed is playing politics and it is hurting consumers and businesses.

Executives

Phil Blair, Manpower

NO: Not unless warranted by Jay Powell’s standards, without administration pressure. We count on Mr. Powell to use his good judgment, not to be pressured for the administration’s solely personal and political advantage.

Gary London, London Moeder Advisors

YES: But I am only answering yes because it is high interest rates that contribute to a significant slowdown in home trading. I sense that inflation is trending uncomfortably high, which will likely be reflected in future reporting, while economic growth has slowed. All mostly owed to tariffs and poor economic policy. I fear stagflation and expect an independent Fed to make this interest cut a modest one, while halting further reductions.

Bob Rauch, R.A. Rauch & Associates

YES: July’s jobs report showed only 73,000 jobs were added, with downward revisions to prior months. Unemployment was up to 4.2%, and job growth has averaged just 35,000/month over the past quarter. July’s Consumer Price Index rose 2.7% year-over-year, close to the Fed’s 2% target. Core inflation was 3.1%, slightly above target. Typically, inflation risk would say “wait,” but employment risk and the likelihood that tariff risk will soon come to an end say “yes!”

Chris Van Gorder, Scripps Health

YES: The labor market appears to be slowing now. Though other indicators might not be consistent with lowering the rate, it is time to take our foot off the brake slightly by enacting a small rate reduction. But if rates are lowered, I would hope it is because of economic indicators and not political pressure. It is vital that Federal Reserve decisions be objectively based. Our markets must have confidence in the decisions.

Jamie Moraga, Franklin Revere

YES: A key issue is whether the Fed waited too long. While many global counterparts have already eased, the U.S. has stayed in “wait and see” mode. With ongoing inflation pressures and tariff uncertainties, caution has dominated policy. But raising or cutting rates is always a balancing act — and we now seem to be at a tipping point. A gradual cut could help test the system’s resilience while supporting economic growth.

Not participating this week:

Norm Miller, University of San Diego

Austin Neudecker, Weave Growth

Have an idea for an Econometer question? Email me at [email protected]. Follow me on Threads: @phillip020

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