WASHINGTON – The Federal Reserve cut interest rates by half of a percentage point on Sept 18, kicking off what is expected to be a steady easing of monetary policy with a larger-than-usual reduction in borrowing costs that followed growing unease about the health of the job market.
“The committee has gained greater confidence that inflation is moving sustainably towards 2 per cent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” policymakers on the US central bank’s rate-setting committee said in their latest statement, which drew a dissent from Governor Michelle Bowman who favoured only a quarter-percentage-point cut.
Policymakers see the Fed’s benchmark rate falling by another half of a percentage point by the end of 2024, another full percentage point in 2025, and by a final half of a percentage point in 2026 to end in a 2.75 per cent to 3 per per cent range.
The endpoint reflects a slight upgrade, from 2.8 per cent to 2.9 per cent, in the longer-run federal funds rate, considered a “neutral” stance that neither encourages nor discourages economic activity.
“This decision reflects our growing confidence that with an appropriate recallibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2 per cent,” Fed chairman Jerome Powell said, at a press conference following the meeting.
US stocks gained following the release of the statement and updated quarterly economic projections, while the US dollar fell against a basket of currencies. US Treasury yields fell.
“The Fed ended the pause with a bang. It’s a strong signal that they cut by 50 basis points and expect another 50 basis points of cuts this year. This was controversial,” said Mr Brian Jacobsen,
