The US Federal Reserve cuts its key policy rate by 50 basis points

The US Federal Reserve has cut the interest rate on federal funds by 50 basis points (bps) – to 4.75-5% per annum. This was reported by the Federal Open Market Committee (FOMC).

This was the first rate cut since March 2020. Until September 18, it was at its highest level in 23 years.

“Recent indicators suggest that economic activity continues to expand at a steady pace. Job growth has slowed, and the unemployment rate has increased, but remains low. Inflation has moved closer to the FOMC’s 2% target, but remains somewhat elevated,” the statement said.

As noted, the Committee in the long term seeks to achieve the maximum level of employment and inflation at 2%. It is reported that there is greater confidence that inflation is moving towards the target level.

“In light of the progress on inflation and the balance of risks, we have decided to reduce the target range of the federal funds rate by 0.5 pp, to 4.75-5% per annum,” the regulator said.

The economic outlook remains uncertain, and the FOMC is mindful of the risks to both sides of its dual mandate (ensuring price stability and maximum sustainable employment).

When considering additional adjustments to the target range, the committee will carefully assess inputs, the outlook, and the balance of risks. The regulator will continue to reduce its holdings of Treasury securities, agency debt, and mortgage-backed securities.

The FOMC will be ready to adjust its monetary policy if risks arise that could impede the achievement of its stated objectives. The estimates will take into account a wide range of data, including labor market indicators, inflationary pressures and inflation expectations, as well as financial and international events.

According to CBS, economists predict that the rate cut will be the first in a series of cuts in 2024 and 2025. Many analysts expect the Fed to also cut the benchmark rate at its meetings in November and December.

On September 12, the European Central Bank cut all three key interest rates. The deposit rate was cut by 25 bps to 3.5%, the main refinancing rate to 3.65%, and the margin loan rate to 3.9%. The ECB emphasized that it will continue to monitor the incoming statistical data and will make decisions on rates at each meeting separately. The regulator has no pre-determined plan for a specific rate level in the future.