The Federal Reserve cut interest rates by 50 basis points on Wednesday, in line with last week’s market expectations of a deeper cut than earlier speculation had suggested.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the committee’s 2 percent objective but remains somewhat elevated,” noted the Fed’s statement.
Inflation’s progress toward 2 percent target
In light of the Federal Reserve’s decision to cut interest rates, Mohamed Hashad, chief market strategist at Noor Capital, highlights the key takeaways from the central bank’s latest statement.
“The committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” added the statement.
But despite the progress the economy has made, the statement added: “The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate.”
Committee cuts interest rates
In light of the progress on inflation and the balance of risks, the committee decided on Wednesday to cut interest rates by 0.5 percentage points to 4.75-5 percent on deposits and lending, respectively.
“In considering additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” added the Fed’s note.
The Fed added that the committee’s assessments will consider a wide range of information, including readings on labor market conditions, inflation pressures and expectations, and financial and international developments.
Read: US Federal Reserve, UAE Central Bank cut interest rates by 50 basis points
Key highlights from Powell’s statement
Hashad also highlighted some key takeaways from the statement by Fed Chair Jerome Powell. Since the committee’s last meeting, two jobs and employment reports have come out in addition to the previous employment data reviews. Powell also cited the Beige Book, a monthly report by the 12 Fed banks that tracks the U.S. economy.
“Today, the Federal Open Market Committee decided to reduce the degree of policy restraint by lowering our policy interest rate by 1/2 percentage point. This decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving,” stated Powell.
He also noted that there was nothing in the Fed’s September statement to suggest that the FOMC was in a hurry, suggesting that the central bank could move faster, slower, or even pause the easing cycle, depending on what circumstances warrant.
Powell stressed that the committee would observe the economy’s reaction to the interest rate cut, stressing that the central banks’ governors discussed the interest rate cut well and that the decision to cut by 50 basis points was supported by the Fed members.
Powell explained in the press conference following the interest rate cut decision that the 19 members of the board saw during the September meeting that there would be a rate cut of at least 50 basis points this year.
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