THE Federal Reserve on Wednesday (Sep 18) kicked off what is expected to be a series of interest rate cuts with an unusually large half-percentage-point reduction, a move aimed at boosting a cooling job market while continuing to push down on inflation.
“This decision reflects our growing confidence that with an appropriate recalibration 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 chair Jerome Powell said in a press conference after the US central bank cut its overnight interest rate to the 4.75 to 5 per cent range.
With risks to both mandates now “roughly balanced”, Powell said, the rate cut marked a “strong start” to protecting strength in the economy and the labour market, and should be seen as a commitment to not falling behind the curve.
The policy decision drew a dissent from Fed governor Michelle Bowman, who favoured only a quarter-percentage-point cut.
Fed policymakers see the central bank’s benchmark rate falling by another half of a percentage point by the end of this year, another full percentage point in 2025, and by a final half of a percentage point in 2026 to end in a 2.75 to 3 per cent range.
The endpoint reflects a slight upgrade, from 2.8 to 2.9 per cent, in the longer-run federal funds rate, considered a “neutral” stance that neither encourages nor discourages economic activity.
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The Fed had kept its policy rate in the 5.25 to 5.5 per cent range since last July, when it ended an 18-month rate-hike campaign that was meant to control a surge in inflation, which soared in 2022 to a 40-year high.
Powell declined to declare victory on that score, but he
