The US Federal Reserve is cutting its rates by 50 bps, marking the first cuts since Covid-19 pandemic.
Fed Chairman, Jerome Powell reassures that the rate cuts don’t imply an urgent process
By Falito Villienuve Tandra, Salma Farah Faiza, and Iman Satyo Adi
September 20, 2024 at 16:30 GMT+7
The Federal Reserve implemented its first 50 basis points (bps) interest rate cut since the COVID-19 pandemic, initiating what many expect to be a steady easing of monetary policy. This larger-than-usual reduction in borrowing costs reflects rising concerns over the health of the U.S. job market and growing economic uncertainty.
By lowering interest rates, the Fed aims to support consumer spending and business investment, potentially providing much-needed relief to an economy showing signs of slowing growth. Financial markets responded immediately, with major stock indices experiencing volatility as investors adjusted to the new landscape.
The decision highlights the Fed’s cautious approach, as it weighs the risks of inflation, recession fears, and ongoing global economic challenges. The move signals a pivotal moment for the central bank’s policy direction.
U.S. Federal Reserve Chairman Jerome Powell speaks to reporters | Source: Kevin Lamarque/Reuters
The Federal Reserve’s decision also included projections for further rate reductions in the coming years, signaling a cautious approach to monetary easing. By the end of the year, the Fed anticipates an additional 50 basis points cut, followed by a full percentage point reduction in 2025 and another 50 basis points in 2026.
These projections suggest a measured and gradual path towards lower interest rates, aiming to balance the need for economic growth with inflation control. The Fed’s dot plot, which outlines the individual expectations of committee members, shows a federal funds rate target range between 2.75% and 3.00% by 2026.
This staged approach highlights the central bank’s cautious stance on monetary policy adjustments. The projected rate cuts are expected to have significant impacts on borrowing costs, inflation rates, and overall economic growth, with gradual reductions aimed at maintaining stability without overreacting to short-term fluctuations.
FOMC meeting | Source: Federal Reserve Board
In the aftermath of the Federal Reserve's recent interest rate cut, Chair Jerome Powell addressed pressing concerns during the post-meeting press conference and highlighted the measured approach taken by the central bank. Powell clarified that while the forecast for additional rate cuts may seem urgent, it reflects a gradual strategy rather than immediate action.
The timing of the recent cut was defended by emphasizing that the Fed did not delay easing measures but acted in response to evolving economic conditions. This decision aims to manage inflation and sustain employment while balancing risks to economic stability. Powell emphasized the goal of restoring price stability without triggering significant unemployment.
As the labor market shows signs of cooling, these remarks reflect a cautious yet optimistic outlook, suggesting that the Fed remains vigilant in fostering a resilient economic environment while navigating the complexities of inflationary pressures.
Sources:
CNBC
Reuters
WSJ
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