Federal Reserve Chair Jerome Powell announced a 0.5% interest rate cut yesterday, setting the Fed’s benchmark rate between 4.75% and 5%|@federalreserve|X
Federal Reserve Chair Jerome Powell announced an interest rate cut yesterday for the first time in four years. And it wasn’t the usual 0.25% cut but a 0.5% reduction in rates, surprising investors and economists.
The decision wasn’t unanimous. Fed Governor Michelle Bowman had advocated for a quarter-percentage-point cut instead.
Analysts were pushing the Fed to reduce rates, but the central bank wanted to see if inflation had cooled before it reduced borrowing costs.
Wednesday’s rate cut sets the Fed’s benchmark rate between 4.75% and 5%.
The decision is significant because it will lower borrowing costs for various financial products, including mortgages and credit cards.
Fed Chair Powell said the rate cut is based on the current economic situation, which has seen inflation cool down to 2.53%, close to the central bank’s 2% target. He emphasized that the American economy is in “good shape” and “it’s growing at a solid pace.”
However, the Fed is also closely monitoring the job market. This year’s rise in the unemployment rate was concerning to the Fed Chair, who anticipates another 0.2% rise in the rate by this year’s end from the current 4.2%.
Moving forward, Fed officials anticipate more rate cuts by the year’s end, in contrast to their June projection of just one reduction in borrowing costs for the year.