The Fed cut rates by half-point: What to know
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The Federal Reserve on Wednesday cut interest rates for the first time since March 2020, as the central bank lowered the benchmark federal funds rate by 50 basis points amid progress in the fight against inflation.
The cut was larger than the 25 basis point cut forecast by LSEG economists, though interest rate traders saw a 64% probability of a 50 basis point cut as of Tuesday, according to the CME FedWatch tool. With the 50 point cut, the Fed lowered the target range for the federal funds rate to 4.75% to 5% ā down from 5.25% to 5.5%.
"Our economy is strong overall and has made significant progress toward our goals over the past two years," Fed Chair Jerome Powell said in a press conference after the announcement.
"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 sustainably down to 2%."
FEDERAL RESERVE CUTS INTEREST RATES BY HALF-POINT; FIRST RATE REDUCTION IN FOUR YEARS
Inflation slowed to 2.5% in August based on the Labor Department's consumer price index (CPI), which is above the Fed's 2% target but showed a continued easing of inflationary pressures and was down nearly half a point from the 2.9% headline reading in July.
The Fed's policymaking arm estimated in its summary of economic projections that the personal consumption expenditures (PCE) index, the central bank's preferred inflation gauge, will slow to 2.3% at the end of 2024 before declining further to 2.1% in 2025 and 2% in 2026 and 2027.
Policymakers expect the unemployment rate, which dipped to 4.2% in August after rising to 4.3% in July, to rise slightly and end this year at 4.4%. The projections see unemployment remaining at 4.4% in 2025, before declining to 4.3% in 2026 and 4.2% in 2027.
FED INTEREST RATE CUTS WON'T HELP YOUR CREDIT CARD DEBT
"I don't see anything in the economy right now that suggests that the likelihoodā¦ of a downturn is elevated," Powell said in response to a question about whether the economy is vulnerable to recession. "I don't see that. You see growth at a solid rate, you see inflation coming down, and you see a labor market that's still at very solid levels."
Stocks rose in the immediate aftermath of the Fed's announcement, with the Dow Jones Industrial Average and the S&P 500 each hitting record highs after the announcement before slipping ahead of the closing bell. The Dow Jones closed down 0.25% while the S&P 500 ended down 0.29%.