Historic interest rate decision from the Fed… It fell for the first time in 54 months

The US Federal Reserve cut interest rates by 50 basis points from 5.5 percent to 5 percent, marking the first time the Fed has cut interest rates in 54 months.

Global markets were focused on the interest rate decision of the US Federal Reserve. The Fed lowered the interest rate by 50 basis points to 5 percent. This was the first interest rate cut since March 2020.

The Fed made the decision to cut interest rates by 11 votes to 1. Fed Board member Bowman voted to cut interest rates by 25 basis points.

POWELL: OUR PRIORITY IS INFLATION

Fed Chairman Jerome Powell said their priority is to bring inflation down and that they will make interest rate decisions from meeting to meeting.

Fed Chairman Powell’s statement is as follows:

The FOMC members remain focused on achieving price stability and full employment. We are committed to keeping the economy strong. The labor market is not a source of inflationary pressures. Inflation has declined but is still above our target. The unemployment rate has increased slightly but is still low. Our primary focus is to bring inflation down. Monetary policy has helped restore the balance between supply and demand. Inflation is much closer to our target. Upside risks to inflation have diminished and downside risks to the labor market have increased. We are not on a predetermined course on interest rates. Our projections are not decisions or plans. We will continue to make decisions from meeting to meeting.

“WE CAN INCREASE THE SPEED OF INTEREST RATE REDUCTS”

If the economy remains strong and inflation persists, we may slow the pace of rate cuts. If the labor market deteriorates, we may respond. As the economy improves, monetary policy will be adjusted to best meet our objectives. There has been a lot of data since the last meeting, and we decided that a 50 basis point cut was the right thing to do. We could cut rates faster, slower, or stop if necessary if appropriate. The September meeting decisions do not indicate that the FOMC is in a hurry. We decided that now is the time to adjust policy more appropriately, given the progress made on inflation and employment. Nineteen members expect several rate cuts this year. Seventeen members expect three cuts by the end of the year. We will make our decisions cautiously from meeting to meeting.

“WE MADE A STRONG START”

We’ve had a good, strong start, and that’s a sign of confidence that inflation is coming to the 2 percent target. The labor market is in a solid position, and we intend to continue to do so. We’re operating on what we think is an appropriate basis. Both the balance sheet and the policy rate steps are a form of normalization. We’re recalibrating policy over time, moving at a pace that we think is appropriate. Labor market conditions have calmed, but we’re still at maximum employment. We believe that with appropriate policy recalibration, the economy will continue to grow. I don’t think we need to see the labor market loosen further to meet the inflation target. The unemployment rate is still at a healthy level. Labor force participation is at a good level. Wage increases are still slightly above the level consistent with 2 percent inflation.

“WE HAVE NOT DECLARED VICTORY YET”

The Fed is not declaring victory on inflation. We are not saying we have succeeded, but we are confident in the progress we have made. We think that as we normalize rates, the housing market will normalize. But the Fed cannot solve the problems in the housing market. The economy continues to grow well, and polls show that 2025 is also expected to be good. We did not cut 50 basis points because we thought we were behind. Everyone on the committee supported that the time was right for a 50 basis point cut. Today’s decision received broad support from the FOMC. We decided that it was time to move toward a little more neutrality. Price stability will benefit people in the long run, and people will not have to worry about rising prices.

“Recent indicators show that economic activity continues to expand at a strong pace. Employment growth has slowed and unemployment remains low, although rising. Inflation has made further progress toward the Committee’s 2 percent target, but remains somewhat elevated. The Committee aims to achieve maximum employment and 2 percent inflation over the long term.

The Committee gained greater confidence that inflation was moving sustainably toward 2 percent and judged that the risks to achieving the employment and inflation targets were roughly balanced.

The economic outlook is uncertain, and the Committee is mindful of risks to both sides of its dual mandate. In light of the progress in inflation and the balance of risks, the Committee has decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent.

In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully consider incoming data, the evolving outlook, and the balance of risks. The Committee will continue to reduce 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 the 2 percent target. The Committee will continue to monitor the impact of incoming information on the economic outlook while assessing the appropriate stance of monetary policy.

The Committee will be prepared to adjust the stance of monetary policy, as appropriate, if risks emerge that could prevent the achievement of the Committee’s objectives. The Committee’s assessments will take into account a wide range of information, including labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

The monetary policy decision was voted by Chairman Jerome H. Powell, Vice Chairman John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Lisa D. Cook, Mary C. Daly, Beth M. Hammack, Philip N. Jefferson, Adriana D. Kugler, and Christopher J. Waller. Voting against the action, Michelle W. Bowman favored lowering the target range for the federal funds rate by 1/4 percentage point at this stage.

GROWTH RATE REVISED DOWNWARDS

While the US Federal Reserve (Fed) officials lowered their growth forecast for this coming year, there was no change in the forecasts for the coming years; the median interest rate forecast was revised downward for the next three years.

According to the “Economic Projection Report” announced by the Fed, the GDP expectation for 2024 was lowered from 2.1% to 2.0%; it remained at 2.00% for 2025, 2026 and 2027, and 1.8% for the long term.

All of the Fed officials’ interest rate estimates for the upcoming period came down. The median interest rate estimate for this year was revised down from 5.1% to 4.4%, for next year from 4.1% to 3.4%, and for 2026 from 3.1% to 2.9%. The estimate for 2027 and the long term was determined as 2.9%.

In the Fed’s projection, the core PCE expectation for this year was lowered from 2.8% to 2.6%, next year from 2.3% to 2.2%, while the expectation for 2026 and 2027 was projected as 2.0%.

Authorities lowered their PCE inflation expectations from 2.6% to 2.3% for this year, from 2.3% to 2.1% for next year, and set them at 2.0% for 2026, 2027 and the long term.

Fed officials raised their unemployment rate forecast for this year to 4.4% from 4.0%, next year to 4.4% from 4.2%, and 2026 to 4.3% from 4.1%; the 2027 and long-term forecast is 4.2%.

Every three months, Fed officials make forecasts for the next three years and the longer term regarding U.S. unemployment, inflation, economic growth and interest rates.

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