Tangle - The Fed slashes interest rates.

I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 12 minutes.

A reminder for tomorrow.

At the request of our readers, tomorrow we will be running a side-by-side comparison of Donald Trump and Kamala Harris on the following eight issues: the economy, immigration, abortion, health care, crime, the environment, guns, and foreign policy. We’ll be looking at what they’ve promised in the past, their records in office, and what they are now promising as we head into 2024. 

I’ll be appearing on Fox29’s show “Battleground” today with S.E. Cupp to discuss the state of the race in Pennsylvania. The show airs live around 1:00 pm ET. Fox29 is broadcast in most cities across the country, and you can view the livestream here, so tune in!

Quick hits.

1. The House blocked House Speaker Mike Johnson's (R-LA) plan to fund the government for six months tied to a measure already passed in the House that would require proof of citizenship to register to vote in national elections. (The vote)
2. The Teamsters Union said it will not endorse Trump or Harris, opting to stay neutral in the 2024 election for the first time in almost three decades. (The announcement)
3. Iranian hackers sent material they stole from the Trump campaign to President Biden's campaign, though there's no evidence any of the recipients responded, according to the FBI and other federal agencies. (The hack)
4. The Department of Justice filed a $100 million lawsuit against the owner and operator of the Dali, the vessel that allided with Baltimore's Francis Scott Key Bridge in March, alleging gross negligence by the company. (The lawsuit)
5. Nippon Steel plans to re-file its application for a national security review by American regulators to acquire U.S. Steel, giving the company an additional 90 days to close the deal. (The latest)

Today's topic.

The Federal Reserve’s rate cut. On Wednesday, the Board of Governors of the Federal Reserve met in Washington, D.C., and agreed to a 0.5% — or 50 basis point — cut to the federal funds effective rate. The 0.5% cut, which lowered the federal interest rate to between 4.75% and 5.00%, exceeded general economist expectations of a 0.25% cut. It is the first Federal Reserve (Fed) interest rate cut since April of 2020. 

The higher-than-expected cut comes as unemployment remains above 4%, following a 0.1% month-over-month decrease in August. Meanwhile, year-over-year inflation remains at 2.5%, as measured by the personal consumption expenditures index (the Fed’s preferred measure of inflation). The final board vote was 11 in favor and one against, the first dissenting vote from a Fed governor since 2005.

Fed Chairman Jerome Powell described the economy as “in good shape,” highlighting healthy growth and dropping inflation. “We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with disinflation,” Powell said in a post-meeting press conference. However, Powell noted that slowed job creation over the past few months “bears watching.”

Economists and analysts are mixed on what the signal means for the near-term future of the economy. The S&P 500 opened at an all-time high on Thursday morning, as investors interpreted the cut as a signal that inflation is under control and the market is ripe for opportunity. Optimists anticipate that the rate cut will mean smaller credit card charges, spurring consumer activity, and lower mortgage rates, encouraging more turnover and lowering costs in the housing market. 

“This will improve the material well-being of all Americans,” said Joe Brusuelas, chief economist at RSM US. “We had three years of extremely aggressive policy out of the Fed. We’re now pivoting toward the normalization of rates in the post-pandemic economy.”

Conversely, concerned analysts highlighted the historical trend of interest rate cuts preceding an imminent recession. After initially spiking, the S&P 500 ended the day down 0.29% on Wednesday (though it would spike again when markets reopened). With unemployment hitting and remaining over 4% since May, the aggressive rate cut can be seen as an indicator that the Fed is anticipating a worsening job market. 

"This is a bit of a surprise," said Brian Coulton, chief economist at Fitch Ratings. “It suggests that the Fed may be more concerned than most about the state of the labor market, where the pace of job creation still looks pretty solid."

Wednesday’s meeting was the last time the Fed board will convene before the election on November 5. However, Powell signaled that the Fed would likely be pursuing another round of interest rate cuts at its next meeting on November 6-7.

Below, we’ll break down what the right and left are saying about the rate cut. Then, I’ll give my take.

What the right is saying.

• The right is concerned by the size of the cut, suggesting it portends an economic downturn.
• Some note that the cut could hinder efforts to fight one of the biggest drivers of inflation: housing.
• Others argue the Fed’s decision-making process should be less opaque. 

The Wall Street Journal editorial board noted “Powell says the economy is strong but still cuts rates by 50 basis points.”

“The question is whether to believe what Chairman Jerome Powell says or what he does. Mr. Powell in his press conference said all is well in the economy, but such aggressive monetary easing suggests he’s more worried than he sounds,” the board wrote. “Mr. Powell and the FOMC also stressed that the risks between inflation and unemployment are ‘roughly in balance.’ But the 50-point cut, plus the rapid pace in the Fed’s estimate of future cuts, suggests a sharp tilt toward heading off more unemployment.”

“Mr. Powell’s bet seems to be that inflation is sufficiently whipped that the Fed can ease aggressively now to forestall a slowdown that hasn’t arrived. He may be right,” the board said. “But it’s notable that the FOMC registered its first dissent since June 2022, as Fed Governor Michelle Bowman preferred a 25-basis point reduction. If Mr. Powell is wrong about inflation—if it doesn’t continue its deceleration back to 2%—the Fed’s credibility will take another major blow that it can’t afford.”

In Hot Air, Ed Morrissey wrote ”go big or (don’t) go home.”

“Powell tried to frame it as a matter of strategic planning and a desire to get ahead of the issues they see, which doesn't conflict at all with the read that we're at least crisis-adjacent,” Morrissey said. “Lowering the rates means easier terms for job-creating investments, even if it also means slightly more loose money in the economy. However, the real drivers of inflation now are not so much prices on consumer goods and services; it mainly comes from shelter costs and municipal utilities.”

“To solve that problem, the economy needs more investment in residential construction, especially in multi-unit properties. Higher interest rates discourage such investment and construction, generally speaking. That could be a problem, however, if other conditions don't change. Pushing lending rates back down below 3% will allow a lot of families to buy their own homes, but that will create a demand spike in a market where supply already can't keep up with demand,” Morrissey wrote. “That makes the bold approach a risk, especially since the Fed has no way to directly prompt liberalization in these state and local policies.”

For The Cato Institute, Norbert Michel said the “Fed’s rate cut shows why policy rules are needed.”

“While the public was left to guess what the Fed would do, it is a fact that multiple rates have already been declining for months. For example, the 30-year mortgage rate has essentially been declining since October, as have the 3‑month and 1‑month Treasury rates,” Michel wrote. “So, maybe the Fed’s not as powerful as everyone seems to think. Regardless, the public should not have to guess what the Fed will do with its target at each meeting.”

“Perhaps none of these rates are the ‘right’ one. But the precise value of the Fed’s target is not what matters most. What matters most is that people want and need predictability and accountability for the Fed, and they have neither. Congress could, however, fix this problem by requiring the Fed to follow a policy rule,” Michel said. “This sort of reform would greatly reduce uncertainty with respect to the Fed’s future policy actions without overly restricting the Fed. It would also make it much easier to hold the Fed and elected officials accountable for their decisions.”

What the left is saying.

• The left is heartened by the rate cut, arguing the Fed has nearly achieved its “soft landing.”
• Some support the cut but note the varied risks it carries. 
• Others suggest the cut may have come too late. 

In U.S. News & World Report, Jason Furman said “pop the champagne for the Fed rate cut and a soft landing ahead.”

“The Fed is not omniscient nor omnipotent, but it has a better track record of predictions and policy actions than most any outside prognosticators. That’s in large part thanks to its strong nonpartisan, technocratic and independent tradition,” Furman wrote. “While Trump is complaining that the Fed’s decision to cut rates now was political, many Republicans disagree, as does everyone who works in markets for a living. Moreover, the Fed’s interest rate cut will have little to no impact on the election, since it will take time to be reflected in expanded job openings or lower grocery prices.”

“Some economists didn’t want the Fed to cut rates until inflation was back down to 2%. There are three reasons that would not have made sense. First, monetary policy operates with a lag, so the Fed needed to get started now. Second, the Fed is responsible not just for inflation but also for unemployment – and it needed to prevent it from rising further. Finally, the significant decline in inflation over the last two years means that the Fed didn’t need to keep interest rates high anymore,” Furman said. “Today’s rate cut still felt a little bit like a sip of champagne, with the Fed savoring a ‘so far, so good’ moment.”

The Economist wrote about “why the Federal Reserve has gambled on a big interest-rate cut.”

“The argument for a half-point cut rested on several pillars. Crucially, the Fed is confident that it is on track to bring inflation under control. Price rises have slowed to an annual pace of 2.5%, not far from its target of 2%. With oil prices sagging and rents rising more slowly, there is a good chance that inflation will soon ease further. So the Fed’s worries have shifted to the job market,” the authors said. “The Fed’s cut is a form of insurance. It takes months for rate reductions to filter through the economy. Given this lag, and given the expectation that the economy will continue to slow, it makes sense for the Fed to make a bigger move now in order to get ahead of the coming weakness.”

“The Fed’s big cut nevertheless poses some dangers… A hefty rate cut against a strong economic backdrop risks sending the wrong signal to markets. The central bank judged that this risk was manageable,” the authors wrote. “Another danger is politics. Coming just before the presidential election, the big rate cut may attract criticism from Donald Trump as a sign that the Fed, a regular target of his ire, is trying to help Kamala Harris. Yet a quarter-point cut could just as easily have invited a charge from Democrats that Mr Powell had been intimidated by Mr Trump.”

In The Atlantic, Rogé Karma asked “did the Fed wait too long to act?”

“Most Americans might not be able to explain what the federal-funds rate is or why it matters, but they will hear that the country’s economic experts have declared that inflation has been defeated and that better days are ahead,” Karma said. “This could become a self-fulfilling prophecy: If the Fed succeeds at brightening the economic mood of the country, then perhaps businesses will keep hiring and raising wages, consumers will keep spending, investors will finance new projects, and the economy will remain strong.”

“The risk remains that the Fed waited too long to act. Inflation has been near the central bank’s target for almost a year, and the economy, while still far from recession territory, has begun to show clear signs of slowing. The number of job openings has fallen, the unemployment rate has risen, and more people are behind on their credit-card bills and car payments. None of this would be particularly worrying if the Fed could simply press a button and provide an immediate boost to the economy.”

My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. If you have feedback, criticism or compliments, don't unsubscribe. Write in by replying to this email, or leave a comment.

• Powell isn’t playing politics, he’s trying to achieve the Fed’s dual mandate.
• Maybe the Fed is worried about looming job losses, or maybe it’s just playing catch-up after standing pat in July.
• The rate cut is definitely a good signal on inflation, and good news for anyone interested in market growth.

Let me try to break down what this isn't, what it might be, and what it is.

First, the easy stuff: This is not the Fed playing politics. If it wanted to play politics, it could have kept rates as they were (presumably to help Trump) through the election or cut rates months ago (presumably to help the Biden-Harris campaign). Indeed, the timing of the cut is too late to some economists, but mostly right about the time a lot of people predicted. The size of the cut was bigger than most people thought, but that could be explained by the Fed’s inaction in July — and the timing is about as apolitical as it could get.

Now, what it might be. Well, the list here is long. Assessing the Federal Reserve’s comments is a bit of a subtext game. Powell is saying the economy is healthy and returning to normalcy. His dual mandate is to control inflation while seeking maximum employment — essentially to pursue economic stability — so it's hard to imagine a world where he'd come out of the Fed meeting telling a dire story. But cutting rates by this much is a pretty extreme move, and it's easy to interpret it as a signal that the Fed sees worrisome signals beneath the surface of a relatively strong economy.

At the same time, it also might be unambiguously positive for all of us. We are living in unprecedented (the word here feels appropriate) economic times. The post-pandemic economy has been abnormal at every turn, so maybe focusing our analysis only on the consecutive months of unemployment over 4% would be wrong. Yes, unemployment is ticking up, but it remains relatively low at 4.2%; meanwhile, inflation has been steadily trending downward and a big rate cut should help reign in high housing costs. For what it’s worth, housing seems to be a point of emphasis for Powell right now — maybe that’s why this cut was so large. 

Rate cuts are usually a reliable indicator of a coming recession, but we've been hearing warnings about an incoming recession for years. Maybe — just maybe — we are witnessing the final stage of the sought-after "soft" landing, and that's all this really is.

Now, what can we say with certainty? Very little. I'm not an economist, and even the economists are divided over what this means (even more so than normal it would seem). But I will go out on a limb here and — for the first time in several years — express some genuine, unabashed, unqualified confidence on inflation. 

The Fed's fears about inflation must have dissipated, otherwise they never would have cut rates by 50 basis points. My concerns have dissipated, too. Nearly every inflationary signal is headed in the right direction, and Powell has indicated that after this cut they will continue to cut more. The population at large still has concerns, but that’s normal; we know consumer sentiment takes a long time to catch up to the data. It’s already catching up, but it might take longer than usual in this case, as prices are never going to return to 2020 or 2021 levels. That's just not how this works.

Consumer sentiment is in part a political question; inflation data is strictly economic. On the latter, the forecast is rather sunny. On the former, we have a much hazier picture.

Obviously, there is an election around the corner, and everyone wants to know what the Fed decision’s impact will be. The short story is that it’s much more likely to help Harris than help Trump by giving her a great answer to the inflation question. More importantly, the cuts will make a tangible difference for Americans — lowering interest rates and mortgage rates and generally making it easy to seek out investments for businesses. This is all good stuff, the kind of things that help cash flow and boost economic activity when we don’t have to worry about driving prices up. 

It should be relatively smooth sailing for the next few months, but we’ll have to wait for the next jobs report on October 4 to get a better vantage on what lies ahead. 

Take the survey: What signal do you think the Fed’s 0.5% rate cut sends? Let us know!

Disagree? That's okay. My opinion is just one of many. Write in and let us know why, and we'll consider publishing your feedback.

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Your questions, answered.

Q: Here is a headline as reported by People Magazine. "Olympic marathon runner Rebecca Cheptegei dies after being set on fire in gasoline attack by boyfriend." And then Jameela Jamil posted on Instagram, “She didn't just die. She was MURDERED by someone she trusted who set her on fire. Stop using passive language.”

Should the media be less passive in their reporting of violence against women or is it the case that you can't call someone a murderer until they've had due process? Is her outrage warranted and necessary to bring attention to atrocities like this or does it end up adding to the culture of division that parts of the mainstream media thrive off of?

— Jocelyn from Vienna, VA

Tangle: Managing editor Ari, here. I very much appreciate this question (heads up, this will be mechanical and indelicate).

First off, I want to define what “passive voice” is, because many people misapply this criticism online. In our favorite in-house reference guide, “Garner’s Modern American Usage,” Bryan A. Garner writes, “The point of passive voice is that the subject of the clause doesn’t perform the action of the verb.” That can lead to inverting sentences (as in this case) in a way that downplays the actor, or by omitting the actor altogether (as in the phrase “passive voice is not preferable”).

The headline example you’re quoting contains two verb phrases, one active and the other passive. The first verb phrase (“dies”) is active, as Cheptegei is the subject and she is performing the action. The verb “to die” is non-transitive (that is, you cannot perform the action of “dying” onto someone else), but that isn’t the same thing as being passive.

However, the second verb phrase (“being set on fire”) is passive. The sentence places the actor at the end of the sentence, downplaying his involvement. Cheptegei didn’t happen to die “after being set on fire” — her boyfriend killed her by setting her on fire.

Jamil is right to take this phrasing to task, but I disagree with both her implication and her solution. I don’t think this headline was mal-intended — headline writers try to punctuate their headlines with important words at the beginning and end, though this often leads them into passivity. Even so, Jamil’s solution doesn’t solve the problem; instead, it creates a new one: Jamil describes the action as murder, which she cannot accurately do without a court conviction. 

Most readers would probably give some grace to headlines, as their constraints don’t create the preconditions for great writing. Within those constraints, though, a better headline would be “Olympic marathon runner Rebecca Cheptegei set on fire, allegedly killed by boyfriend.”

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Under the radar.

Drug overdose deaths, which have increased by double-digit percentages in recent years, dropped precipitously between April 2023 and April 2024. National surveys compiled by the Centers for Disease Control and Prevention show a decline of roughly 10.6% in that period, and some researchers believe the data will show an even larger decline when federal surveys are updated to reflect state-level data. Approximately 100,000 people per year still die of overdoses, but the latest numbers are an encouraging signal after the number of annual overdose deaths rose by approximately 42,500 between 2018 and 2023. Experts haven’t determined the exact causes of the reversal, but many point to improvements in the availability and affordability of medical treatments for fentanyl addiction as a likely catalyst. NPR has the story.

Numbers.

• 10 of 19. The number of Fed officials who support an additional rate cut of at least 0.5% over their two remaining meetings in 2024, according to projections released following the September meeting.
• +0.2%. The predicted increase in the unemployment rate by the end of 2024 (from its current 4.2% to 4.4%), according to the Fed’s Summary of Economic Projections.
• 3.4%. The projected median federal funds rate by the end of 2025, according to the Fed’s forecast. 
• 11. The number of times the Fed raised interest rates between February 2022 and July 2023. 
• 53. The number of months since the Fed’s last rate reduction in March 2020.
• 69.0. University of Michigan’s Consumer Sentiment Index for September 2024, a +1.6% month-over-month increase. 
• +21. Gallup’s Economic Confidence Index score (ranging from -100 to +100) among Democratic voters in August 2024.
• -76. Gallup’s Economic Confidence Index score among Republican voters in August 2024.
• 45%. The percentage of Americans who said now is a good time to find a quality job in August 2024, down from 49% in April 2024.

The extras.

• One year ago today we covered Mitt Romney’s retirement announcement.
• The most clicked link in yesterday’s newsletter was the Senate’s in-vitro fertilization bill failing.
• Nothing to do with politics: A TikTok craze could be driving a cucumber shortage in Iceland.
• Yesterday’s survey: 1,405 readers responded to our survey on Chief Justice John Roberts’s role in three January 6 cases with 47% saying he had a large and negative impact. “I think the bigger question is the confidence level, or lack of, in the court overall,” one respondent said.

Have a nice day.

Despite its delicious output, making chocolate can be a wasteful process. Chocolate production typically only uses the beans of the cocoa fruit while the rest goes to waste. But recently, a Swiss scientific team based out of the Federal Institute of Technology has pioneered a chocolate-making method that uses the whole cocoa fruit. The new process has been touted as both more environmentally sustainable and as a stronger economic proposition for farmers. BBC News has the story.

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