As inflation eases, the Fed must lower lending rates

Last month, the Consumer Price Index – the inflation indicator – 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 has hung over what was, on paper, a rosy economy for the past year; even as unemployment has hit record lows and wages have risen, the sense that those gains are being offset by higher prices has created a despondency among much of the public that only now seems to be slowly dissipating. The more abstract notion of national unemployment figures is at odds with the far more tangible experience that the price of eggs is significantly higher than it was a few years ago. Yet the treatment of runaway inflation is an invasive one: a steady dose of painful interest rate hikes that have pushed the interest rate up more than 5% since March 2022.

When rates rose, we feared that the shock therapy would be too much for us and push the economy into recession. In fact, many economists said this was practically predictable. But it didn't happen, partly because of the easing of external factors such as supply chain bottlenecks and the impact of the Russian invasion of Ukraine on global energy prices, and partly because of the cautious efforts of the Fed, which knew exactly how much it needed to raise rates to avoid catastrophe in either direction.

Now, however, is the time to ease off the accelerator. Overheated inflation is 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 families, few people are eager to take out a high-interest mortgage at an already exorbitant price. Budding entrepreneurs are hesitant at the thought of taking on loans that could potentially put them in the red – and that's not just true in 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 then. The likelihood of inflation suddenly easing after a gradual easing seems slim, and the chances of that happening are numerous.

The economy keeps running when people can get credit, allowing them to take more risks and make bigger purchases they couldn't afford with cash alone. The fact that Donald Trump warned Powell and the Fed before the election against cutting interest rates 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 should go beyond petty politics. Lower interest rates.

— The New York Daily News