Fed reduces rates by half a point, aiming to support the job market as inflation shows signs of easing
The Federal Reserve reduced its benchmark interest rate by half a point, marking its first rate cut in over four years.
According to BNN Bloomberg, this decision follows a period of high rates that tamed inflation but raised borrowing costs for American consumers. The rate cut reduces the key interest rate to approximately 4.8 percent, down from 5.3 percent.
This shift highlights the Fed's new focus on supporting the job market, which has shown signs of slowing. Inflation has fallen from its peak of 9.1 percent in mid-2022 to 2.5 percent in August, close to the Fed’s 2 percent target.
The central bank indicated additional cuts in the upcoming November and December meetings, with more expected through 2025 and 2026.
At a press conference, Federal Reserve Chair Jerome Powell explained, “We know it is time to recalibrate our (interest rate) policy to something that’s more appropriate given the progress on inflation.”
Powell stated the US economy remains in a good position, aiming to keep it there through these measures.
While inflation has largely eased, high prices for groceries, gas, and other necessities remain a concern for many Americans.
Critics, including former President Donald Trump, blame the current administration for triggering inflation, while Vice President Kamala Harris argued that Trump's proposed tariffs would raise consumer prices further.
The Federal Reserve's rate cuts are expected to reduce borrowing costs for consumers, leading to lower mortgage and credit card rates, while stimulating growth. Mortgage rates have already dropped to an 18-month low of 6.2 percent, boosting demand for refinancing.
In a dissenting opinion, Federal Reserve board member Michelle Bowman expressed her preference for a smaller quarter-point cut, reflecting concerns over inflation not being fully defeated.
However, policymakers anticipate the unemployment rate will rise from 4.2 percent to 4.4 percent by the end of 2025.
With the presidential election approaching, the Federal Reserve's actions have drawn political attention. However, Powell reiterated that the institution remains focused on “maximum employment and price stability,” distancing the decision from political influences.
