Athira Sethu
Kochi, 19 September 2024
In a much-anticipated move, the US Federal Reserve officials have voted to cut interest rates by half a percentage point (50 basis points) to boost a weakening economy.
It would be the first time since the beginning of the coronavirus pandemic, the US Fed has reduced rates.
The Fed’s rate-setting committee cited its growing confidence that inflation is drifting toward the goal of 2% over time. The committee voted 11 to 1 to lower the benchmark lending rate to 4.75% – 5.00%. In this vote, Governor Michelle Bowman was the only dissent. She voted for a more timid quarter point reduction.
The Federal Reserve projects another half-point reduction by the end of this year, a full percentage point cut in 2025, which will ultimately bring down rates in the range of 2.75% to 3.00%.
Economic Outlook and Market Reaction
Speaking at a press conference, Fed Chair Jerome Powell said that the recalculation move in monetary policy is intended at one end to maintain labour market strength and at the other end to promote moderate growth and hit the inflation target. Following the announcement, US stocks rallied, and the dollar dropped against other currencies, while the treasury yields declined.
Currently, inflation in the US economy is still a bit above the 2% target of the central bank. Projections indicate that it is likely fall to 2.3% at the end of this year, 2.1% in 2025. Unemployment is also set to rise to 4.4% by year-end from the current rate of 4.2%, and it’s expected to level out by 2025.
Meanwhile, the economic growth forecast is set at 2.1% in 2024, with a further decrease to 2% in 2025. Many analysts see this move in the context of the upcoming Presidential elections as the impact of such interest rate reductions on jobs and inflation will be keenly watched by American voters.
