The long-awaited day for the economy has finally arrived as the U.S. Federal Reserve (Fed) decided to cut interest rates by 50 basis points (0.5%) in a significant move. This marks a notable moment for the U.S. economy, as the central bank has lowered rates for the first time in four years.
This decision follows a two-year tightening campaign aimed at controlling persistent inflation. Although inflation has not yet reached the 2% target, progress in curbing it has enabled the Fed to proceed with the rate cut. Now, all eyes are on how the economy will respond to this decision.
Over the past month, all attention has been focused on the Fed’s September meeting, which was predicted to be the time when the central bank would ease its efforts against stubborn inflation. Now, the Fed has followed through on that prediction and taken the necessary action.
The Fed has cut interest rates by 50 basis points (0.5%) to 5%, a move that will help lower borrowing costs and push towards the goal of achieving a “soft landing” that the Fed has been hoping for. This goal is the driving force behind the aggressive rate hikes that began in 2022.
This may be the first in a series of rate cuts, with many expecting this effort to continue into 2025. At this point, nothing seems to stand in the way of the central bank’s plan. In a recent speech at Jackson Hole, Wyoming, Fed Chair Jerome Powell expressed confidence that inflation is being brought under control.
Inflation figures have fallen from a high of 9.1% in 2022 to 2.5%, according to the latest Consumer Price Index (CPI) data. Over the past two years, the Fed has raised rates 11 times, bringing them to their highest level in 23 years before implementing this cut.
With the 2024 U.S. presidential election approaching in November, this is certainly a critical time. The U.S. economy, already fragile, requires decisive intervention to bring inflation back to the 2% target. Fortunately, the Fed made this key decision at its most recent FOMC meeting.
