The FOMC concluded its September meeting this Wednesday with the announcement of a 50 basis point interest rate cut.
The monetary authority announced the half-percentage-point cut, thus beginning an easing policy it hadn’t implemented since the early days of the pandemic.
“In light of progress on inflation and the balance of risks, the Committee decided to reduce the target range for the federal funds rate by half a percentage point, bringing it to between 4.75% and 5%,” said the Fed’s statement.
Additionally, FOMC members said that when considering further adjustments to the target range for the federal funds rate, “the Committee will carefully assess incoming data, the evolution of the outlook, and the balance of risks.”
However, the FOMC “will continue reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities.”
The Fed’s Monetary Policy Committee members remain “firmly” committed to “supporting maximum employment and bringing inflation back to its 2% target.”
Fed Chairman Jerome Powell announced in August, during his final conference at the Jackson Hole symposium, that the time for monetary policy adjustment had arrived. However, he clarified at the time that the pace would depend on macroeconomic data.
“The time has come to adjust monetary policy. The direction is clear, and the timing and pace of rate cuts will depend on new data, the evolution of the outlook, and the balance of risks,” Powell said, according to the speech published by the Fed.
However, August employment data solidified expectations of a possible cut this Wednesday. The question was whether the cut would be 25 or 50 basis points.
Most analysts expected a minimum cut of 25 basis points, with the prospect of a more gradual monetary policy easing. However, the Fed has been bolder than analysts expected, deciding on a 50 basis point cut.
With this move, the Fed ends the policy it had been following since June 2022, when inflation peaked at 7.1%, forcing the monetary authority into a series of rate hikes throughout 2023 and part of this year.
