The Federal Reserve announced on Wednesday that it is lowering its key interest rate by 50 basis points (or a half percent) in the first interest rate cut since 2020 — with the hopes to protect the economy from a further slowdown. The Federal Reserve’s FOMC said in a statement, “In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5%.” The cut was made possible by inflation that has fallen from a COVID-19 pandemic high of 9.1% to the current inflation rate of 2.5%.
Federal Reserve Chair Jerome Powell said during Wednesday’s press conference that the cut is designed to maintain the strong U.S. economy. Powell said in the announcement that the central bank noted job gains had slowed, while inflation had made further progress toward its 2% goal, adding the labor market and the economy is in “solid shape. The U.S. economy is in a good place and our decision today is designed to keep it there. Our intention is to maintain the strength we currently see in the U.S. economy.”
Powell added that the inflation rate is considerably lower now and he believes the lower inflation level is sustainable: “We had a burst of inflation and many other countries around the world had a similar burst of inflation. Interest rates were raised to reduce inflation. People don’t experience that as pleasant but, in the end, you get low inflation restored .. [which will] benefit many people over a long time.”
Powell added that he is encouraged by the progress that’s being made, and that most members of the FOMC anticipate that economic conditions will allow a succession of more interest rate reductions. The FOMC Wednesday statement said, “The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance. “
Editorial credit: Domenico Fornas / Shutterstock.com