The US Federal Reserve cut its benchmark interest rate by half-point, a move that is expected to make borrowing less expensive for American public and an indication that it is winning the war against inflation after more than two years of high rates.
The first rate cut in more than four years is expected to bolster the job market, which has shown clear signs of slowing.
The central bank’s officials raised their key rate 11 times in 2022 and 2023.
Federal Reserve slashes rates
The Fed lowered its key rate to roughly 4.8 per cent, down from a two-decade high of 5.3 per cent as it battled the worst inflation streak in four decades.
Inflation has now come down from a peak of 9.1 per cent in mid-2022 to a three-year low of 2.5 per cent in August.
The Committee showed a strong commitment to supporting maximum employment and returning inflation to its 2 per cent objective.
In a statement, the Fed said: “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 toward the Committee’s 2 per cent objective but remains somewhat elevated.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 per cent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 per cent, 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.
“In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by half percentage point to 4.75 to 5 per cent.
“In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
The policymakers also signalled that they expect to cut their key rate by an additional half-point in their final two meetings this year, in November and December. And they envision four more rate cuts in 2025 and two in 2026.
The markets have been anticipating this move for some time now. Rate cuts by the Fed directly affect consumers, lower borrowing costs for home mortgages, auto loans and credit cards and lead to more spending and growth.
The Fed’s next policy meeting is scheduled for November 6-7, immediately after the presidential election.
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