Nick Timiraos, a prominent Wall Street Journal reporter often referred to as the Federal Reserve’s mouthpiece, has cautioned that the central bank’s recent interest rate cuts may not be enough to guarantee a soft landing for the U.S. economy.
Timiraos emphasized that achieving a soft landing depends on several factors, including the underlying health of the economy and the ability of lower borrowing costs to stimulate new investment and spending. He warned that even if interest rates fall, many businesses and households may remain hesitant to borrow due to higher interest rates on existing fixed-rate loans.
The key issue, according to Timiraos, is the discrepancy between the marginal cost of debt (which is currently decreasing) and the average debt interest rate. For many borrowers who locked in low interest rates before the Fed’s rate hikes, the average debt interest rate remains below the marginal cost of new credit. This disparity can discourage borrowing, even as the Fed attempts to stimulate the economy through rate cuts.
