The US Federal Reserve has announced a cut in interest rates for the first time since the pandemic, as was expected. According to the statement, the Federal Open Market Committee (FOMC) cut the rate by 50 basis points (50bps) in September for the first time in more than 4 years. This has brought the current interest rates to the range of 4.75% to 5%, which was earlier at the level of 5.25% to 5.5%.
After the decision, Federal Reserve chief Jerome Powell said that he does not believe that he has delayed the rate cut. At the same time, he clearly said that even though the rates have been cut by 0.5%, it does not mean that the work on inflation is over. There is still more work to be done.
Powell said that the US economy remains strong and we want to keep it strong. The Federal Reserve estimates that GDP can register a growth of 2% in the year 2024.
The decision was almost unanimous
The central bank had kept interest rates unchanged for eight consecutive meetings until July. After raising it by 25 bps last year, benchmark rates remained at a 22-year high.
The Fed chairman said there was broad support for a 50 basis point cut. Only one of the 12 FOMC members was in favour of a 25 basis point cut.
Federal Reserve officials revised the inflation outlook to 2.3% from 2.6% previously. For core inflation, the committee lowered its forecast to 2.6%, a decrease of 0.2 percentage points from June.
The Federal Reserve said in a statement that even though inflation has moved toward the committee’s 2% target, it remains “somewhat elevated.”
The statement said, ‘The committee wants to achieve ‘maximum employment and inflation target’ at the rate of 2% in the long run.
The Committee is confident that inflation is moving sustainably toward 2%, and believes that risks to achieving the employment and inflation goals are roughly in balance.’
Federal Reserve officials raised their expected unemployment rate for this year to 4.4% from June’s estimate of 4%.
Powell said that the Federal Reserve is increasingly hopeful that the strength in the job market can be maintained while adjusting policy rates. He reiterated that the job market is not putting inflationary pressure on the economy.
Apart from this, the Fed statement said, ‘The committee is confident that all risks to the employment and inflation targets are under control.’
Jerome Powell said that the US Federal Reserve will not follow a fixed course and will evaluate the data to make future decisions. He said that the recent 50bps cut should not be seen as setting a new pace. The Fed will continue to monitor new data.
Powell said, ‘Our policy stance will help maintain the strength of our economy and labor market and continue to enable further progress on inflation as we move toward a more neutral stance. We are not on a predetermined path.’
