Interest rates set by the US Federal Reserve decreased for the initial time since the commencement of the year.
Federal Reserve Lowers Interest Rates Amidst Deteriorating Economic Indicators
In a move aimed at bolstering the U.S. economy, the Federal Reserve has lowered its key interest rate for the first time this year. The decision, made following a two-day meeting on September 16-17, was led by Fed Chair Jerome Powell and will see the interest rate decreased by 25 basis points.
The new range for the key interest rate is now 4-4.25% annually. This move continues the cycle of monetary policy easing that began in September 2024, as the U.S. interest rate had been at a 20-year high (5.25-5.5%) from July 2023 to September 2024.
Inflation indicators remain elevated, but the Fed is committed to returning to its 2% target. Despite this, no new information about inflation indicators was provided in the Fed's latest announcement.
At a press conference following the decision, Jerome Powell explained that a more aggressive 50 basis point cut did not receive sufficient support among committee members. He also acknowledged the high inflation risks that the economy currently faces.
The pace of job creation has decreased, and there is a noted slowdown in economic activity growth in the first half of the year. However, unemployment remains at relatively low levels, with no new information about job creation or unemployment provided in the Fed's press release.
The Fed's decision to lower interest rates comes amidst deteriorating economic indicators. The U.S. dollar index initially fell (by about 0.4%) following the rate cut announcement, but then recovered after Powell's press conference. Treasury bond yields initially decreased and then rose as traders digested Powell's remarks about high inflation risks.
The decision to lower the peak interest rates in October 2024 was made by the Federal Reserve members under Jerome Powell's leadership; no indication exists of a rate cut decision before his tenure as Fed Chair in that period. The Fed emphasizes that future decisions will be based on incoming economic data, and the next Fed meeting, scheduled for October 28-29, will consider the further trajectory of interest rates.
The Fed maintains its independence in determining monetary policy, and the latest decision is part of its ongoing efforts to support the U.S. economy during challenging times. The Federal Reserve has made it clear that it will continue to monitor economic indicators closely and adjust its monetary policy as necessary to promote maximum employment and stable prices.
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