The Federal Reserve cut interest rates by half a percentage point on Wednesday, kicking off what is expected to be a continued easing of monetary policy with a larger-than-usual reduction in borrowing costs that followed growing unease over the health of the labor market. “The committee has gained increased confidence that inflation is moving sustainably toward 2 percent, and it judges that the risks to achieving its employment and inflation objectives are roughly balanced,” policymakers on the U.S. central bank’s rate-setting committee said in their latest statement, which drew dissent from Governor Michelle Bowman, who favored only a quarter-percentage point cut.
The central bank’s move cut its key rate to about 4.8%, from a two-decade high of 5.3%, where it had remained for 14 months as it struggled to rein in the worst run of inflation in four decades. Inflation has fallen from a peak of 9.1% in mid-2022 to a three-year low of 2.5% in August, not far above the Fed’s 2% target.
Impact before the elections
High interest rates and skyrocketing prices on everything from food to gas to rent have fueled widespread public disenchantment with the economy and provided a line of attack for former President Donald Trump’s campaign. Vice President Kamala Harris, in turn, has charged that Trump’s promise to slap tariffs on all imports would raise prices for consumers much further.
Over time, the Fed’s rate cuts should reduce borrowing costs for mortgages, auto loans and credit cards, as well as business loans. Business spending could rise, and so could stock prices. Companies and consumers could refinance loans into debt with lower rates.
Inflation in the United States
Chairman Jerome Powell made clear last month in a high-profile speech in Jackson Hole, Wyoming, that Fed officials are confident inflation has largely been defeated. It has plummeted from a peak of 9.1% in June 2022 to 2.5% last month, not far above the Fed’s 2% target. Central bank officials fought rising prices by raising their key interest rate 11 times in 2022 and 2023 to a two-decade high of 5.3% to try to rein in borrowing and spending, which ultimately cooled the economy.
Since then, wage growth has slowed, removing a potential source of inflationary pressure. And oil and gas prices are falling, a sign that inflation should continue to cool in the coming months. Consumers are also balking at high prices, forcing companies like Target and McDonald’s to offer deals and discounts.
(With contributions from the agency)
READ ALSO: US Federal Reserve cuts interest rates by 50 basis points, first reduction since 2020
Disclaimer:
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.