Fed Chair Jerome Powell has developed an unfortunate reputation for being chronically late with his appropriate policy decisions. His most significant misstep came when he maintained near-zero interest rates from January 2021 to June 2022, all while inflation spiraled out of control.

As the Federal Reserve prepares to meet this week with the intention of cutting interest rates, the question arises: Will the Fed’s cut be sufficient?

The Fed’s mandate is to ensure price stability while promoting full employment. However, the actions necessary to achieve these objectives stand in stark contradiction. To curb inflation, the Fed must implement a restrictive monetary policy, which includes raising interest rates and slowing the growth of the money supply.

Conversely, when the economy struggles to generate enough jobs for new labor market entrants, the Fed opts for a more stimulative approach, which involves lowering interest rates and increasing the money supply.

Since June 2022, the Fed has focused heavily on stabilizing prices. This strategy was needed largely because of the federal government’s massive multi-trillion-dollar annual deficits in 2020 and 2021, along with an energy policy that drove prices up. This resulted in annual inflation climbing from 1.4% in December 2020 to a peak of 9.1% in June 2022.

It’s crucial to recognize that the Fed could have mitigated this inflationary surge by adopting a restrictive monetary policy much sooner. In early 2021, while the unemployment rate was plummeting after the previous year’s shutdown and the economy was experiencing healthy growth at 6%, “too late,” Powell kept interest rates near zero until June 2022.

During this same period, they rapidly expanded the money supply through hefty purchases of government bonds, totaling $120 billion monthly.

This stimulative monetary approach, combined with a government fiscal policy also aiming to boost the economy, accelerated the inflation problem. The Fed should have initiated rate hikes much earlier — ideally, early in 2021 — yet they waited until inflation reached an alarming 9.1%.

As we moved into 2025, data suggested the economy was slowing down. First-quarter GDP growth was negative, and revised job figures indicated the economy was creating fewer than 30,000 new jobs per month.

By April of this year, it became evident that the Fed needed to pivot toward stimulating the economy.

The Federal Funds Rate (FFR) is currently about 4.3%, which most economists consider restrictive. While inflation had fallen to below 3%, it still exceeded the Fed’s target of 2% but was a far cry from that 9% peak.

In April, the Fed should have begun to adjust the FFR to a more neutral position, ideally between 3.25% and 3.5%. Yet they took no action during the spring meetings and remained inactive throughout the summer.

Now, with another meeting coming this week, the Fed is likely to approve a reduction in the FFR. While any cut would be welcome, it comes nearly six months too late.

Will the anticipated cut be adequate?

Economic consensus points to a reduction of 25 basis points, but this is insufficient, particularly given the downward adjustments to job creation figures. These adjustments say that from March 2023 to June 2025, the number of jobs created was overstated by nearly 2 million.

This dramatic revelation should compel the Fed to consider at least a 50-basis-point drop. Maintaining a completely neutral policy would require the Fed to lower rates by 100 basis points.

Powell was too late to implement rate increases in 2021 and 2022. He has also missed the mark by not reducing rates earlier this year. Regardless, a rate cut of at least 50 basis points is now necessary to create more jobs.

Last month, the economy managed to add only 22,000 jobs.

While there is concern that inflation may rise temporarily due to the Trump Administration’s tariff policies, a significant increase in energy production should mitigate price hikes, resulting in an eventual drop in the Consumer Price Index (CPI).

OPEC Plus has announced an increase in oil production starting this month, and Trump’s “drill baby drill” initiative is poised to add even more supply. Trump believes that by this time next year, oil prices could plummet to the $50 per barrel range, translating to gas prices around $2.50 per gallon and a CPI at 2%.

If “too late” Powell cuts interest rates by a small amount, he will be referred to as “not enough” Powell.

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