US Fed slashes rates by 50bps, kicks off cutting cycle
Make us a preferred source
Make us a preferred source on Google
The news: The US Federal Reserve cut its benchmark interest rate by 0.5 percentage points, lowering the federal funds rate to a range of 4.75% to 5% following concerns over the labour market.
The numbers: The decision saw an 11-1 vote, with Governor Michelle Bowman dissenting in favour of a smaller 0.25-point cut, the first by a Fed board member since 2005.
A narrow majority of officials also projected another half-point cut by year-end.
The S&P 500 rose to be almost 1% higher in intraday trading before paring gains. Treasury yields and the Bloomberg Dollar Index immediately fell following the move.
The context: The Fed's updated forecasts reflect concerns over the economic outlook, with unemployment expected to rise to 4.4% by the end of 2024, higher than the 4% expected in June.
The median forecast for inflation at the end of the year fell to 2.3%, along with the median projection for economic growth, which fell to 2%.
Economists and traders were highly divided about the magnitude of the rate cut. Economic forecasts had largely leaned toward a smaller 0.25-point cut, but concerns about a weakening labour market and slowing growth ultimately led to the larger decision.
What they said: "We have begun the cutting cycle," Fed chairman Jerome Powell said at a news conference following the announcement.
“It is time to recalibrate our policy (stance) to something that is more appropriate given the progress on inflation and on employment moving to a more sustainable level. This is the beginning of that process,” he said.
“We don't think we are behind. We think this is timely, but I think you can take this as a sign of our commitment not to get behind. So it's a strong move.”
However, he warned: "I do not think that anyone should look (at this strong move today) and say this is the new pace," adding that every decision would be based on the data, the outlook and the balance of risks.
In its monetary statement, the bank said: “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.”
“The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
The source: US Federal Reserve
