Interest rates should be lowered: As inflation eases, the Fed must lower interest rates on loans

Last month, the Consumer Price Index – the indicator of inflation – fell below the 3% mark for the first time since March 2021, reaching 2.9% in July. This, among other things, makes it more likely that interest rates will be cut when the Federal Reserve Board meets in September. We hope that policymakers, in their collective wisdom, will take this step to further stimulate the American economy.

Inflation overshadowed what was on paper a rosy economy last year. Although unemployment has reached record lows and wages have risen, the idea that these gains will be wiped out by higher prices has created a gloom among large sections of the population that only now seems to be slowly dissipating.

The more abstract notion of national unemployment figures contrasts with the far more tangible experience that the price of eggs is significantly higher than what one remembers from a few years ago. But the treatment of runaway inflation is an invasive one: a steady dose of painful interest rate hikes that have pushed the interest rate up by more than 5% since March 2022.

With interest rates rising, we feared that shock therapy would have too much of an impact and push the economy into recession. In fact, many economists were practically saying that this was a given.

But that didn't happen. This was partly due to the easing of external factors such as supply chain bottlenecks and the impact of the Russian invasion of Ukraine on global energy prices. It was partly thanks to the prudent efforts of the Fed, which knew exactly how much it needed to raise interest rates to avoid a catastrophe in one direction or the other.

Now, however, it is time to take your foot off the gas.

Overheated inflation is even worse, but high interest rates have their own consequences. At a time when housing prices have already risen so high that buying a home is unaffordable for working-class families, few people are willing to take on a high-interest mortgage at an already exorbitant price.

Budding entrepreneurs are hesitant about taking out loans that could potentially put them in financial difficulty. And this is not just true for the hyper-speculative technology sector, which was the first to suffer from rising interest rates.

With inflation apparently on a clear downward trend, Fed Chair Jay Powell and the rest of the panel should seriously consider the possibility of reversing some of the recent rate hikes. We have not yet reached the Fed's 2% target and may not reach it for a while, but Powell has already signaled that he is open to rate cuts before that point.

The likelihood of inflation suddenly declining as a result of gradual easing seems slim, but the chances of it happening are numerous.

The economy keeps running when people have access to credit. This allows them to take more risks and make larger purchases that they could not afford with cash alone. The fact that Donald Trump warned Powell and the Fed against cutting interest rates before the election shows that even he knows that such a cut would be a boon to the American public and would damage his electoral chances.

But maintaining a strong economy cannot go beyond petty politics. Lower interest rates.

— New York Daily News