URGENT: Fed cuts rates by a half point, first time in 4 years
The US Federal Reserve announced on Wednesday a significant reduction in interest rates for the first time since March 2020. The Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 50 basis points to 4.75 per cent to 5.00 per cent.
Fed’s bold, but not unexpected, half-point cut move paves the way for lower borrowing costs on everything from mortgages to credit cards.
It marks a crucial milestone for the US central bank’s historic inflation combat, which kept rates at a bruising 23-year high for more than a year.
The decision comes as the US economy continues to exhibit signs of resilience, with job growth slowing and unemployment rising slightly. While inflation has made progress toward the Fed’s 2 per cent target, it remains elevated.
In its statement, the FOMC indicated that it remains committed to achieving maximum employment and price stability. The Committee expressed confidence that inflation is moving sustainably toward its target and assessed the risks to achieving its goals as roughly balanced.
The Fed also announced that it would continue to reduce its holdings of Treasury securities and agency debt. This move is intended to provide additional stimulus to the economy.
While the central bank has lowered interest rates, it cautioned that the economic outlook remains uncertain and that future rate adjustments may be necessary. The FOMC will continue to monitor incoming data and assess the balance of risks to the economy.
For 16 consecutive meetings over two years, Fed officials were in complete agreement on interest rate policy. However, this streak of unanimity was broken on Wednesday when Governor Michelle Bowman dissented from the majority decision.
While Bowman favoured a quarter-point rate cut, the majority of officials voted for a half-point reduction, which was implemented immediately. The dissenting vote from Bowman marked the first disagreement among the 11 voting members.
Although there was unanimous agreement on the rate cut, it’s likely that heated discussions took place behind closed doors during the two-day monetary policy meeting. The minutes of the meeting, scheduled for release in three weeks, may provide more details about these internal debates.”
Attribution: US Federal Reserve
