The Federal Reserve has reduced US interest rates by 50 basis points, marking its first reduction in 4 years and bringing the benchmark rate down to a range of 4.75-5.00 percent. This adjustment, which is twice the usual 25 basis point change, reflects increased apprehension regarding economic growth as inflation begins to decelerate. The decision is intended to protect the labor market in light of rising uncertainties.
On Wednesday, the US Federal Reserve made a major move by reducing its key lending rate by half a percentage point, marking its first cut in over four years. This decision comes just ahead of the presidential election in November, effectively lowering borrowing costs.
This change will influence the interest rates that commercial banks charge consumers and businesses, making loans for things like mortgages and credit cards more affordable. This action signals a shift away from the Fed’s previous high interest rate strategy, which was intended to curb demand.
With inflation now trending down towards the central bank’s long-term goal of two percent and the job market showing signs of cooling in a surprisingly strong post-Covid economy, the timing seems right. For Democratic presidential candidate and current US Vice President Kamala Harristhis substantial rate cut is likely seen as a positive development as she prepares to face off against former Republican President Donald Trump in the upcoming election on Tuesday November 5, 2024.
“While this announcement is welcome news for Americans who have borne the brunt of high prices, my focus is on the work ahead to keep bringing prices down,” Harris stated.
During an event in New York on Wednesday, Trump commented on the Fed’s decision, suggesting it was either a reaction to a “very bad” economy or an instance of “playing politics.” “But it was a big cut,” he acknowledged.
11-to-1 in favor
Policymakers voted 11-to-1 in favor of lowering the central bank’s benchmark rate to between 4.75 percent and 5.00 percent, the Fed announced in a statement.
Federal Reserve issues FOMC statement
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress towards the Committee’s 2 percent objective but remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The 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. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
