By this point in 2001, 20, the US economy was entering recession. More significantly, it has risen 50 basis points since April, an exceptional move for a healthy economy. The unemployment rate at 3.9% in October is slightly above the Fed’s end-2023 forecast of 3.8%. Last week marked a turning point for the balance of risks to the economy - for now at least. Lowering the Fed Funds rate by 50-75 basis points over the next few quarters would reduce the risk of more drastic interest rate cuts in a recession - and may even stave off recession. The recent trajectory of job growth means policymakers can no longer rule out unemployment snowballing in 2024, which should force a shift in how they think about managing their dual mandate.
The inflation scare is barely behind us, and it is already time for the Federal Reserve to focus on recession risks.
