The day the economy has been waiting for has arrived, as the US Federal Reserve has cut interest rates by 50 basis points, marking a pivotal moment in economic policy. This marks the first rate cut by the Central Bank in four years, following a prolonged period of tightening aimed at combating persistent inflation.
A Long-Awaited Decision
The rate cut comes after a two-year battle to curb inflation, which had stubbornly remained above the Fed’s 2% target. While inflation has not fully reached the goal, significant progress has been made, encouraging the Fed to take this action. Now, the spotlight shifts to how the US economy will respond to this long-anticipated development.
Interest Rate Reduction Signals Economic Relief
The Federal Reserve’s September meeting had been highly anticipated, with expectations that it would mark a shift in the Fed’s strategy against inflation. True to predictions, the Central Bank lowered rates by 50 basis points, providing much-needed relief to the economy. This reduction in borrowing costs is expected to stimulate economic activity, contributing to the soft landing the Fed has been aiming for since it began aggressively raising rates in 2022.
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A Series of Cuts Expected
Many analysts believe this rate cut will be the first in a series that may extend through 2025. During a recent speech at the Jackson Hole symposium, Federal Reserve Chair Jerome Powell expressed confidence in the Fed’s progress against inflation, pointing to the decline in inflation from a peak of 9.1% in 2022 to 2.5%, according to the most recent Consumer Price Index (CPI) data.
Before today’s cut, the Fed had raised interest rates 11 times over two years, pushing them to a 23-year high. Now, with inflation under greater control, the Central Bank has begun reversing its policies, which could play a pivotal role in the run-up to the 2024 presidential election.
