The stock market continues to set records, thanks mainly to optimism for returns on big investments in artificial intelligence. Stock holdings are disproportionately concentrated among the more well-off and give them greater financial flexibility. According to data from Moody\u2019s Analytics, the top 10% of household wealth holders now account for about 50% of all spending in the economy. <\/p>\n
\u201cThe economy can move forward simply with folks in the top continuing to buy, even if the ones in the middle and lower are struggling, simply because so much spending is done by the well-to-do,\u201d said Mark Zandi, chief economist at Moody\u2019s Analytics. \u201cBut it can\u2019t flourish.\u201d<\/p>\n
The question is what happens after the Fed\u2019s rate announcement, including whether it will cut rates at its October and December meetings. The central bank\u2019s benchmark interest rate is used to set other borrowing rates throughout the economy. To determine where to set it, the Fed looks at inflation and unemployment rates. <\/p>\n
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Federal Reserve Chair Jerome Powell in Grand Teton National Park near Jackson Hole, Wyo., on Aug. 22.Natalie Behring \/ Getty Images file<\/p>\n
Right now, the Fed\u2019s preferred inflation gauge remains above its 2% target, but it has shown some signs of stability even as it has ticked up<\/a>. The unemployment rate has been creeping up, too. At 4.3%, it is now at its highest point since October 2021. <\/p>\n In part because of concerns about the inflationary impact of President Donald Trump\u2019s sweeping tariffs, the Fed has left its key interest rate unchanged since December, before Trump returned to office. The Bureau of Labor Statistics reported Tuesday that import prices were up 0.3% in August, an increase from July and evidence that foreign exporters are not eating much tariff costs. <\/p>\n But last month, Fed Chair Jerome Powell indicated policymakers were more open to cutting the rate, which he said was at a \u201crestrictive\u201d level, meaning it may be holding back economic activity.<\/p>\n Bill Adams, chief economist at Comerica financial services group, said, \u201cLower interest rates will help the economy stabilize into the turn of the year.\u201d <\/p>\n Recent labor reports have shown that just 22,000 jobs were added in August<\/a> \u2014 far below forecasts \u2014 and the official hiring rate remains stuck at levels last seen<\/a> in 2013. It now takes about 10 weeks at the median for someone out of a job to find a new one, with the share taking at least six months now making up 26% of all unemployed workers. According to the New York Federal Reserve, workers say<\/a> there is just a 44.9% probability they would find other jobs if they lost their current ones, the lowest in the survey\u2019s history. <\/p>\n The lackluster jobs market is making consumers feel increasingly concerned about their financial prospects, according to sentiment surveys. The University of Michigan said Friday<\/a> that its consumer-sentiment gauge deteriorated in early September to a level only slightly above pandemic-era lows, while the Conference Board research group\u2019s consumer-confidence survey reported rising worries about jobs and income<\/a>.<\/p>\n Cheaper money, but at what cost?<\/p>\n Lowering interest rates would help reduce the cost of interest payments on regular purchases like auto loans and credit cards, which should help increase overall economic activity and ultimately boost employment as businesses are able to borrow money for less. <\/p>\n Trump and others have argued a lower Fed rate would help boost the housing market by making it more affordable to own a home. The Fed\u2019s rate does not directly influence mortgage rates, which instead tend to move in tandem with the rate on the 10-year Treasury note.<\/p>\n Right now, the 10-year rate is near its lowest point of Trump\u2019s second term as investors have dialed back inflation expectations. As a result, mortgage rates are also falling, and at 6.35% they are at their lowest level since April. <\/p>\n A lower Fed rate would help make it cheaper for homebuilders to borrow money, which would directly help lower overall housing costs somewhat. <\/p>\n There is a chance that lowering rates too much, or too quickly, risks causing inflation to surge \u2014 especially as inflation lingers and people keep spending. <\/p>\n \u201cIt\u2019s a delicate balancing act,\u201d said Adams, of Comerica. <\/p>\n Many financial groups continue to report that spending is largely holding up<\/a>. According to data from Bank of America, spending per household rose 0.4% month-over-month in August \u2014 the third increase in a row. <\/p>\n On Tuesday, the Commerce Department reported retail sales for August climbed 0.6%, well ahead of estimates for a 0.2% increase. <\/p>\n \u201cThe consumer at this point appears to be exactly where we were, resilient, doing well, in a good position,\u201d Alastair Borthwick, chief financial officer<\/a> at Bank of America, said at a conference last week. <\/p>\n What about the job market?<\/p>\n Economists are also keeping an eye on how many new jobs must be created in the economy each month to satisfy demand for goods and services from businesses and consumers. This is also called the \u201cbreakeven rate.\u201d<\/p>\n Because of Trump\u2019s crackdown on immigration, along with an aging population, some analysts say the breakeven rate is rapidly trending downward and may even be close to zero. It is the main reason lower monthly jobs growth has not translated into a rapidly increasing unemployment rate. <\/p>\n \u201cGenerally speaking, people who want to work are working,\u201d said Jed Kolko, an economist who served in the Biden administration. Most jobs data suggests the economy \u201cis providing jobs for people who want them \u2014 but it\u2019s not overheating,\u201d he said. <\/p>\n At the same time, qualified workers \u201care just harder to come by,\u201d said Holly Wade, executive director of the National Federation of Independent Businesses\u2019 Research Center. <\/p>\n Small businesses, especially those in skilled-trade industries like manufacturing and construction, have continually cited challenges with labor quality as their top concern, according to the NFIB<\/a>. Many businesses have been forced to leave roles unfilled, even as they have also beefed up training courses, since many immigrant workers caught up in Trump\u2019s crackdown have skilled-trade experience. <\/p>\n College graduates now account for an increasing share of the long-term unemployed population, suggesting the need for knowledge and administrative work may be declining. That has created concerns that artificial intelligence is eliminating certain jobs \u2014 though there remains debate about how significant the technology\u2019s impact is<\/a>. <\/p>\n