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The Fed surprised its critics and cheered advocates of greater economic expansion today by voting to cut short-term interest rates a full half-point. The decision was said to be a close one. It should not have been.

Inflation in August was down to an annual rate of 2.5 percent, and labor markets are showing some softness. Vacant jobs per unemployed person declined from 2.0 in early 2022 to 1.1 now. Job growth in the private sector averaged just 96,000 in the last three months, less than in the pre-pandemic period. And the unemployment rate rose from 3.5 percent in July 2023 to 4.3 percent in July 2024.

As our friends at EPI point out, there is still plenty of strength in the job market. But the slight cooling gave the Fed chair, inflation hawk Jay Powell, just enough cover to persuade him that it was time to finally cut rates. Before today’s meeting, futures markets and commentators were divided about evenly in predicting whether the Fed would opt for a miserly quarter-point cut or a more tonic half-point.

The cut comes not a moment too soon. The Fed’s action cuts very short-term rates to the range of 4 3/4 percent to 5 percent. These lower interest rates will ripple across the economy, not only helping job markets but giving consumers relief from high interest charges in credit card borrowing, as well as helping homebuilders and small businesses.

This morning, interest rates on 30-year mortgages were around 6.1 percent, already down from a peak of over 7 percent, in anticipation of the Fed’s action. Now they should come down further to the 5 percent range, helping both builders and buyers. And since the biggest borrower in the economy is the federal government, lower rates will also help reduce the projected federal deficit.

Needless to say, this is good news for the Harris campaign. It portends more job creation, stronger economic growth, and more housing construction. Some of this will take time to bear fruit, but it could produce gains soon.

In its always-guarded official statement, the Federal Open Market Committee declared, "The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance." Powell, speaking more candidly at a press conference, noted that inflationary expectations have come dramatically down, and that most of his colleagues favor multiple rate cuts.

Having moved in a dovish direction, Powell worked his colleagues to support him. There was only one dissenting vote, from archconservative Michelle Bowman, who favored a smaller cut of a quarter-point, the first dissenting vote in almost two decades.

Powell took more credit than he deserved for the reduction in inflation. Rates could have been cut months ago without spiking prices. But let him have this victory lap. Since the COVID-driven inflation has long been driven from the economy, there is plenty of room for more rate cuts.