Policymakers see the Fed’s benchmark rate falling by another half of a percentage point by the end of this year.
The United States Federal Reserve has cut interest rates by half of a percentage point, kicking off what is expected to be a steady easing of monetary policy with a larger-than-usual reduction in borrowing costs that follows growing unease about the health of the job market.
“The committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” policymakers on the US central bank’s rate-setting committee said in their latest statement on Wednesday, which drew a dissent from Governor Michelle Bowman, who favoured a quarter-percentage-point cut.
Policymakers see the Fed’s benchmark rate falling by another half of a percentage point by the end of this year, another full percentage point in 2025 and a final half of a percentage point in 2026 to end in a range of 2.75 percent to 3 percent.
The endpoint reflects a slight upgrade, from 2.8 percent to 2.9 percent, in the longer-run federal funds rate, considered a “neutral” stance that neither encourages nor discourages economic activity.
Even though inflation “remains somewhat elevated”, the Fed statement said policymakers chose to cut the overnight rate to the 4.75 percent to 5 percent range “in light of the progress on inflation and the balance of risks”.
The Fed “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” with attention to “both sides of its dual mandate” for stable prices and maximum employment, the statement said.
“The Fed cut of 50bps [basis points] shows they are serious about easing and trying to catch up,” Rachel Ziemba, economist and adjunct fellow at the Center for a New American Security, told Al Jazeera. “It’s a bit more than the consensus expected … I don’t think it’s a sign they expect a recession, but is a sign that the recent softening labour market and easing inflation has given them space.”
Fed’s strategy
Fed Chairman Jerome Powell in a news conference came closer than the committee has before to declaring victory over inflation.
“We know that it is time to recalibrate our [interest rate] policy to something that’s more appropriate given the progress on inflation,” Powell said. “We’re not…