Business News
4 min read | Updated on September 19, 2024, 08:45 IST
SUMMARY
Federal Reserve Chair Jerome Powell said on Wednesday that the larger-than-usual half-percentage point reduction was meant to show policymakers' commitment to sustaining a low unemployment rate now that inflation has eased.
Federal Reserve Chair Jerome Powell
Walking the talk, the Jerome Powell-led Federal Open Market Committee (FOMC) on Wednesday, September 18, reduced the interest rate by 50 basis points (bps) to the range of 4.75%–5.0%, thus resuming the rate-cut cycle after four years.
The Federal Reserve last reduced rates on March 16, 2020, as part of an emergency response to an economic shutdown brought about by the spread of the COVID-19 pandemic. The US central bank began hiking interest rates in March 2022 as inflation was climbing to its highest level in more than 40 years and last raised rates in July 2023. During the tightening campaign, the Fed raised rates 75 basis points four consecutive times.
Federal Reserve Chair Jerome Powell said on Wednesday that the larger-than-usual half-percentage point reduction was meant to show policymakers' commitment to sustaining a low unemployment rate now that inflation has eased.
“We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation. That’s what we’re trying to do, and I think you could take today’s action as a sign of our strong commitment to achieve that goal,” Chair Jerome Powell said at a news conference following the decision.
The Fed on Wednesday lowered the interest rate by 50 basis points to the range of 4.75%–5.0%, starting its monetary easing in an aggressive way. The move marked the first rate cut by the US central bank in more than four years, since the beginning of the COVID-19 pandemic.
Of 12 members of the Federal Open Market Committee (FOMC), 11 voted in favour of the decision, while one member, Fed Governor Michelle Bowman, advocated for a 25 basis point rate cut, according to the policy statement.
In addition to this reduction, the FOMC committee indicated through its “dot plot” the equivalent of 50 more basis points of cuts by the end of the year. The matrix of individual officials’ expectations pointed to another full percentage point in cuts by the end of 2025 and a half point in 2026. In all, the dot plot shows the benchmark rate coming down about 2 percentage points beyond Wednesday’s move.
The Fed's Summary of Economic Projections (SEP) indicated the Federal Reserve sees core inflation peaking at 2.6% this year—lower than June's projection of 2.8%—before cooling to 2.2% in 2025 and 2.0% in 2026.
Officials see the unemployment rate ticking up to 4.4% in 2024, higher than the previous forecast of 4.0%. Unemployment is expected to remain at 4.4% in 2025 before coming down to 4.3% in 2026.
US stocks closed with modest losses on Wednesday, well off their intraday highs, after the Federal Reserve cut interest rates by 50 basis points.
The Dow Jones Industrial Average fell 103.08 points, or 0.25%, to 41,503.10, the S&P 500 lost 16.32 points, or 0.29%, to 5,618.26 and the Nasdaq Composite lost 54.76 points, or 0.31%, to 17,573.30.
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