Virginia Tech: Trio of experts believes interest rates will be cut this week by Fed

Everyone is glued to what is going to happen this week with interest rates, according to a Virginia Tech economist, but don’t expect a huge rate cut.

“They are not going to give you any clues as to how soon they’re going to do it. They will hint that, by now, because the labor markets are slowing down, cuts are coming,” said economist David Bieri, of the Fed’s decision on interest rates.

Finance experts at Tech concur that interest rates likely will be cut this week, but any adjustment will likely be small, around a quarter percent.

Bieri says the bigger story is not the cut itself, but how its impact through the markets and expectations.

“Yes, short-term interest rates will have to come down,” said Bieri. “Whether they need to come down aggressively by December or mid-next year, in my humble opinion, doesn’t really matter a great deal.

“What’s going to be more interesting to watch is how the Fed is massaging these increasingly aggressive expectations, because people are pushing them in one direction.”

Politics may also play a small part in the interest rate decision.

“I think the Fed wants to display independence, so I am pretty sure they will not give either political party a ‘valid’ reason for criticism,” said Vijay Singal, head of the finance department in Tech’s Pamplin College of Business.

Truist Emeritus Professor of Finance George Morgan agrees that a small cut is likely.

“My fear is that inflation will tick up again next year, and the Fed will then feel they have to raise rates just when everyone is expecting continuing cuts,” said Morgan. “Cutting too much now risks having to raise in 2025,” he said, “especially if they adhere to their stated policy of targeting 2 percent inflation on average.”