US Federal Reserve cuts interest rates by 50 bps in key FOMC meet chaired by Jerome Powell

US Federal Reserve Meeting : The US Federal Reserve on Wednesday cut interest rates by 50 basis points. "In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent," the FOMC statement read.

This is the first time in over four years that the US Federal Reserve has cut interest rates. Today’s rate cut starts a cycle to reverse the restrictive conditions that had been imposed to keep inflation in check.

" In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective," the FOMC statement read.

Since July 2023, when the central bank last raised interest rates by 25 basis points to a range of 5.25% to 5.50% to address inflation, borrowing costs have remained at their highest levels in over two decades. Recently, however, attention has shifted to a moderating labor market.

The latest US economic data shows that job growth, while slowing from the high levels seen during the COVID-19 pandemic, remains in positive territory, according to a Reuters report. Retail sales and industrial production figures released on Tuesday exceeded expectations, and the Atlanta Fed's model, which estimates economic growth based on incoming data, indicates that the economy is currently expanding at a 3.0% annual rate in the third quarter, surpassing the central bank's estimates of the U.S. economy's potential.

Following the pandemic, a perfect storm of factors, including goods scarcity, significant spending, labor shortages, large government deficits, and aggressive corporate pricing, pushed inflation to its highest level in 40 years in 2022.

Although wage growth was robust and outpaced price increases for many workers, sentiment remained negative for much of the time. The Federal Reserve raised interest rates to slow the economy, which led to higher home mortgage rates and banks tightening credit for various loans and borrowers.

The Fed's preferred inflation measure is now just half a percentage point above the central bank's target, and it is expected to gradually decrease throughout the remainder of 2024 and into the following year.

Despite the challenges, the economy has performed better than anticipated by nearly all measures.

This year, US stock markets have rallied, with all three major indexes reaching record highs due to expectations of lower interest rates as inflation eased and the job market displayed gradual signs of cooling.