Statement | Economic Growth

News from EPI EPI welcomes Fed’s rate cut

The Fed’s announcement that it would cut the federal funds rate by another quarter point is welcome. The interest rate increases between 2016 and 2018 are the most plausible contributors to recent weak growth, and the Fed is right to have begun reversing these previous hikes. Today’s GDP data highlight continued economic weakness, and confirm as well that the fiscal boost provided by the 2017 tax cuts was trivially small and has long since worn out. Additionally, the year-over-year change in core prices reported in today’s GDP figures indicates that inflation remains well below the Fed’s 2% target. Finally, while we will get more updated figures on wage growth in Friday’s jobs release from the Bureau of Labor Statistics, so far this year there has been a pronounced flattening of wage growth, even as productivity has begun ticking up. This growing wedge between pay and productivity is not the sign of a hot labor market. All in all, the combination of a slowing economy, a cooling labor market, no help from fiscal policy, and below-target inflation argues strongly that an interest rate cut was obviously the correct move.

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