WASHINGTON: The Federal Reserve cut interest rates by half of a percentage point on Wednesday, kicking off what is expected to be a steady easing of monetary policy with a larger-than-usual reduction in borrowing costs that followed growing unease about the health of the job market.
“The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” policymakers on the US central bank’s rate-setting committee said in their latest statement, which drew a dissent from Governor Michelle Bowman who favored only a quarter-percentage-point cut.
Policymakers see the Fed’s benchmark rate falling by another half of a percentage point by the end of this year, another full percentage point in 2025, and by a final half of a percentage point in 2026 to end in a 2.75%-3.00% range.
The endpoint reflects a slight upgrade, from 2.8% to 2.9%, in the longer-run federal funds rate, considered a “neutral” stance that neither encourages nor discourages economic activity.
“This decision reflects our growing confidence that with an appropriate recallibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%,” Fed Chair Jerome Powell said at a press conference following the meeting.
US stocks gained following the release of the statement and updated quarterly economic projections, while the US dollar fell against a basket of currencies. US Treasury yields fell.
“The Fed ended the pause with a bang. It’s a strong signal that they cut by 50 basis points and expect another 50 basis points of cuts this year. This was controversial,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Even though inflation “remains somewhat elevated,” the Fed’s latest statement said policymakers chose to cut the overnight rate to the 4.75%-5.00% range “in light of the progress on inflation and the balance of risks.”
The central bank “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” with attention to “both sides of its dual mandate” for stable prices and maximum employment, it said.
The Fed’s policy meeting this week was its last before voters go to the polls in what is expected to be a close US presidential election on Nov. 5. —Reuters
