On September 27, Wall Street Journal reporter Nick Timiraos, noted for his expertise on the Federal Reserve, discussed the implications of potential rate cuts for achieving an economic soft landing. He emphasized that success in this area hinges not only on the degree of economic weakness in the United States but also on the ability of lower borrowing costs to stimulate new investments and consumer spending amid a slowdown.

Timiraos pointed out that despite a reduction in interest rates, many businesses and households may remain hesitant to borrow. This reluctance arises from the fact that new loans would typically come with higher rates than their existing fixed-rate loans, which were secured at lower rates in prior years. If these entities are unwilling to take on new debt, the effectiveness of rate cuts in revitalizing the economy could be significantly constrained.

He also highlighted the disparity between the marginal cost of debt—which is currently declining—and the average debt rate, which may still be on the rise. This situation is particularly pertinent for borrowers who locked in low rates before the Fed initiated its series of rate hikes. Even with recent cuts, the average debt rate in many sectors remains lower than the new marginal cost of credit, a consequence of historically low borrowing costs over the last decade followed by swift rate increases.