September 19, 2024
New Delhi, India
FOMC Interest Rate Cut
The Federal Open Market Committee (FOMC), led by US Federal Reserve Chair Jerome Powell, announced a 50 basis points (bps) cut in the benchmark interest rate during its September 18 policy decision, bringing the rate down to 4.75%-5.00%. This marks the Fed’s first rate reduction in four years and follows eight consecutive meetings since July 2023 where the rate remained at a 23-year high.
Key Highlights:
- Rate Cut Decision: The 50 bps cut aligns with Wall Street expectations, as the Fed moves to recalibrate its monetary policy amidst falling inflation. This reduction is aimed at providing economic support while inflation stabilizes near the Fed’s target.
- Future Rate Cuts: Policymakers expect another 50 bps cut by the end of 2024, followed by a full percentage point cut in 2025 and a final reduction in 2026, eventually lowering the rate to a range of 2.75%-3.00%.
- Inflation and Economic Outlook: US inflation has dropped significantly from its mid-2022 peak of 9.1% to 2.5% in August 2024, just above the Fed’s 2% target. With inflation largely under control, the Fed’s focus has shifted to maintaining economic growth and avoiding a recession. Powell assured that the risk of an economic downturn is not elevated, highlighting a stable labor market and solid growth indicators.
- Previous Stance: The Fed had kept rates steady at 5.25%-5.50% for 14 months, following a series of aggressive hikes starting in March 2022 to combat surging inflation.
- Powell’s Comments: At a press conference, Powell described the cut as a “recalibration” of policy, emphasizing that future decisions will be made on a meeting-by-meeting basis. While the cut was substantial, the decision wasn’t unanimous, with Fed Governor Michelle Bowman favoring a smaller, quarter-point reduction.
As the Fed continues to monitor economic conditions, further rate adjustments are likely based on inflation trends and labor market dynamics.
Also Read: NSE Sets November 2 as Record Date for 4:1 Bonus Share Issue
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