Fed interest rate cut: Benchmark lending rate slashed by 0.5%

The United States’ central bank, the Federal Reserve, on Wednesday (September 18), enacted its first interest rate cut since the early days of the Covid pandemic.

In a much-anticipated move that fell widely in line with market expectations, the Fed cut the interest rates in the country by 0.5 per cent.

With both the jobs picture and inflation softening, the central bank’s Federal Open Market Committee (FOMC) decided to lower its key overnight borrowing rate by 50 basis points, affirming market expectations that had recently shifted from an outlook for a smaller cut.

One hundred basis points make one percetage point.

The Federal Reserve’s dot plot has suggested that the interest rate will be lowered two more times in 2024. Before this, the expectation was that that would happen only once.

Apart from the emergency rate cuts during Covid, the last time the FOMC cut by half a point was in 2008 during the global financial crisis.

In the press conference following the crucial meeting, FOMC chair Jerome Powell shared a brief regarding the current economic situation in the US.

He said that recent indicators suggest that economic activity has continued to expand at a “solid pace” and that the GDP rose at an annual rate of 2.2 per cent in the first half of the year.

Powell further noted that FOMC participants “generally expect GDP growth to remain solid with a median projection of two per cent over the next few years.”

Regarding consumer price inflation, Powell said “our patient approach over the past year has paid dividends. Inflation is now much closer to our objective, and we have gained greater confidence that inflation is moving sustainably toward two per cent.”

He said that the median projection for total Personal Consumption Expenditures (PCE) inflation is 2.3 per cent in 2024 and 2.1 per cent next year– somewhat lower than projected in June. “Thereafter,” he added, “the median projection is two per cent.”