Opinion | The Feds Big Rate Cut Wasnt Political. It Was an Economic No-Brainer.

In one sense, you could say that Wednesday’s decision by the Federal Reserve to cut rates was of minimal importance.The interest rate the Fed more or less directly controls — the federal funds rate — is the rate at which banks lend one another money overnight.

And it’s hard to think of any businesses or consumers who will change their plans because the annualized interest rate on one-day borrowing has fallen a half a percentage point, from around 5.5 percent to around 5 percent — which means that if you borrow $1,000, your repayment the next day falls by 1.4 cents.Yet it was a momentous move all the same.For one thing, Fed rate changes tend to percolate into longer-term interest rates that really do matter for the economy.

For example, the series of rate hikes the Fed undertook in 2022 and 2023 drove 30-year fixed mortgage interest rates up to almost 8 percent from about 3 percent.Even more important, by beginning to cut rates, the Fed — which began raising rates in 2022 in an attempt to control surging inflation — in effect declared its belief that the war on inflation has been won.Why should we care what the Fed thinks? Let me tell you a secret: Jerome Powell, the Fed chair, and his colleagues don’t have any inside information about the state of the economy.(OK, they might have advance warning if, say, a major bank is about to fail.) Most of their decisions are based on the same data about unemployment, inflation and so on available to anyone with an internet connection.It’s true that the Fed has some very smart economists on its staff.

But there are plenty of smart economists outside the Fed, too.The implicit declaration that inflation has been defeated won’t come as news to anyone who has, for example, been following Mark Zandi at Moody’s or Jan Hatzius at Goldman Sachs, who have been telling us for months that inflation is under control.Yet the Fed gains some perceived gravitas from its policy role, which means that its opinion carries...