The Federal Reserve has made a significant decision to cut interest rates by half a percentage point, aiming to give the economy a boost.
This larger-than-usual rate cut by US Fed is designed to make borrowing more affordable for businesses and consumers alike, encouraging spending and investment. The move comes as concerns about the job market’s health continue to rise, with many experts expressing unease about potential slowdowns in employment growth.
According to US Central Bank’s rate setting committee, “The US Fed 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.”
Also, the Federal Reserve chair person, Mr. Powell, stated, “The labour market is in a strong place – we want to keep it there. That’s what we’re doing.”
The US Fed has lowered its benchmark lending rate by 0.5 percentage points, bringing it to a new range of 4.75% to 5%. This rate cut, announced on Wednesday, was larger than what most analysts had expected just a week prior. The US Fed’s outlook suggests that rates may drop by another half percentage point before the year ends.
Chairperson Jerome Powell acknowledged that last year’s job market was overheating, so some slowdown is seen as a positive. However, he emphasized that the US Fed isn’t concerned about a severe economic downturn at this stage. Mr. Powell further said, “I do not see anything in the economy right now that suggests that the likelihood… of a downturn is elevated.”
BREAKING: The Federal Reserve has cut interest rates for the first time since the start of the pandemic, cutting rates by 50 basis points.
— Collin Rugg (@CollinRugg) September 18, 2024
The Fed says it has "greater confidence" that inflation will return to a normal level.
The cut was more aggressive than what many… pic.twitter.com/0xY9I6y78H
Rachel Ziemba, economist and adjunct fellow at the Center for a New American Security, said, “The US Fed cut of 50bps [basis points] shows they are serious about easing and trying to catch up. It’s a bit more than the consensus expected … I don’t think it’s a sign they expect a recession, but is a sign that the recent softening labor market and easing inflation has given them space.”
Fed Chairman, Mr. Powell said, “We know that it is time to recalibrate our [interest rate] policy to something that’s more appropriate given the progress on inflation. We’re not saying, ‘mission accomplished’ … but I have to say, though, we’re encouraged by the progress that we have made. The US economy is in a good place and our decision today is designed to keep it there.”
The Federal Reserve took the widely expected step Wednesday of announcing its first interest rate cut in years, a move that will have a major impact on the finances of Americans across the board. https://t.co/6imdEwv1Y1 pic.twitter.com/RMXzc06dv0
— Forbes (@Forbes) September 18, 2024
He further asserted, “There is thinking that the time to support the labour market is when it’s strong and not when you begin to see the layoffs. We don’t think we need to see further loosening in labour market conditions to get inflation down to two percent.”
However, it is pertinent to mention here that the Federal Reserve’s policy meeting this week was its final one before the U.S. presidential election, which is set to take place on November 5. With the election expected to be closely contested, this timing adds an extra layer of significance to the US Fed’s decisions. Many will be watching to see how the central bank’s actions might impact the economy and, in turn, influence voters’ choices as they head to the polls.
