US Fed cuts interest rates by 50bps, first in 4 years

September 18, 2024 (MLN): The US Federal Reserve lowered its federal funds rate by 50 basis points to 4.75%-5.00%, a bigger margin than expected.

That was the first rate cut since March 2020.

"The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance," it said in a statement.

11 of the Fed's members voted for the half-point cut. Meanhwile, voting against this action was Michelle W. Bowman, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting.

Policymakers see the federal funds rate falling by another 50bps by the end of this year, another 100bps in 2025, and by a final 50bps in 2026 to end in a 2.75%-3.00% range.

The annual inflation rate in the US slowed to the lowest since February 2021, falling from the mid-2022 peak of over 9% to 2.5% in August.

The annual core inflation also slowed to an over three-year low of 3.2%. Moreover, the unemployment rate inched up to 4.2% in August.

Fed updated quarterly economic forecasts, raising their median projection for unemployment at the end of 2024 to 4.4% from 4% forecast in June.

Meanwhile, the median forecast for PCE inflation at the end of 2024 declined to 2.3% from 2.6%, and the median projection for economic growth decreased to 2% from 2.1% in June.

To note, officials do not see inflation falling below its 2% target until 2026.

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