A Warning for the US Economy Came from the Journalist Known as the FED Spokesperson!

Wall Street Journal reporter Nick Timiraos, who is considered an important name on FED policies, warned that the latest interest rate cuts may not be enough to ensure a soft landing for the US economy.

“FED May Not Achieve a Soft Landing Despite Making Interest Rate Cuts”

While lower borrowing costs are generally intended to stimulate investment and spending, Timiraos suggests that the actual impact of these reductions will depend on deeper economic factors.

Timiraos explained that the success of the FED’s interest rate cuts depends on the current level of weakness in the US economy and whether businesses and consumers are willing to borrow under the new conditions. “Despite falling interest rates, many businesses and households may remain hesitant to borrow because the new rates, although lower, may still be higher than the rates locked in years ago on fixed-rate loans,” he said.

The biggest challenge, according to Timiraos, is the disparity between the marginal cost of debt, which is falling, and the average interest rate on existing debt, which may continue to rise. Many businesses and households took out loans at historically low interest rates before the Fed started raising interest rates. Despite recent reductions, the average loan interest rate across various sectors remains lower than the current cost of new credit.

This gap could limit the incentive effect of interest rate cuts, as borrowers may choose to stick with their existing, lower-cost loans rather than take out new, potentially higher-cost debt. Timiraos argues that this reluctance to borrow could undermine the Fed’s ability to compensate for any economic slowdown with low interest rates alone.

The FED’s aggressive interest rate increases last year, after interest rates remained close to zero for more than a decade, changed the borrowing environment. Although the central bank is currently easing interest rates, the transition from historically low borrowing costs has created complex dynamics for businesses and consumers. As Timiraos noted, it remains unclear whether the current economic strategy will work, and much will depend on how the market responds to these changing conditions.

While the US economy is going through this transition period, the possibility of a soft landing, in which the economy slows down without going into recession, continues to be questioned.

*This is not investment advice.