The highly anticipated day for the economy has arrived, as the U.S. Federal Reserve (Fed) has taken a substantial step by reducing interest rates by 50 basis points (0.5%). This is a pivotal moment for the U.S. economy, marking the first rate cut in four years by the central bank.
The Fed’s Move
This decision comes after a two-year tightening cycle aimed at tackling stubborn inflation. While the inflation rate hasn't yet reached the 2% target, the progress made in containing it has paved the way for this rate reduction. Now, the focus shifts to how the economy will react to this decision.
For the past month, all eyes have been on the Fed's September meeting, which many predicted would be the point when the central bank would begin to ease its fight against high inflation. That prediction has now come to fruition with the Fed's latest action.
The Fed has reduced interest rates by 50 basis points, bringing them down to 5%. This move is expected to lower borrowing costs and help push towards the much-anticipated "soft landing" that the Fed has been striving for since the aggressive rate hikes started in 2022.
Looking Ahead
This could be the first in a series of rate cuts, with many analysts expecting this trend to extend into 2025. Currently, it appears there are no major obstacles to the central bank’s plans. Fed Chair Jerome Powell recently expressed confidence in the battle against inflation during his speech at Jackson Hole, Wyoming.
Inflation, which peaked at 9.1% in 2022, has since fallen to 2.5%, according to the most recent Consumer Price Index (CPI) data. Over the last two years, the Fed raised rates 11 times, pushing them to a 23-year high before implementing this cut.
With the 2024 U.S. presidential election approaching in November, this decision is particularly timely. The U.S. economy, still fragile, requires firm measures to bring inflation back to its 2% target. Thankfully, the Fed made this crucial move at its latest FOMC meeting.
