Federal Reserve cuts interest rates by 25bps amid inflation concerns
What's the story
The US Federal Reserve has cut its key interest rate by a quarter percentage point (25bps), as widely expected by economists. The move comes amid growing concerns over the US labor market and inflation still lingering. The decision was made during an 11-to-1 vote of the Federal Open Market Committee (FOMC), with newly appointed Governor Stephen Miran being the sole dissenting voice in favor of a half-point cut.
Rate adjustment
Fed's overnight lending rate now in 4-4.25% range
The FOMC's decision has lowered its benchmark overnight lending rate by a quarter percentage point, bringing the overnight funds rate to a range between 4% and 4.25%. This is the first cut since December and comes as part of the Fed's strategy to manage economic growth amid mixed signals from labor markets and inflation trends.
Economic outlook
Job gains have slowed: FOMC
In its post-meeting statement, the FOMC acknowledged that economic activity has "moderated," but added that "job gains have slowed" and inflation "has moved up and remains somewhat elevated." These developments pose challenges to the Fed's dual mandate of price stability and maximum employment. The committee also noted an increase in downside risks to employment, highlighting concerns over labor market conditions amid ongoing inflationary pressures.
Market response
Rate cut's impact on financial markets
The announcement of the rate cut led to mixed reactions in the stock market, with major averages showing volatility. Fed Chair Jerome Powell described the move as "risk management" rather than a direct response to a weakening economy. Treasury yields also reacted differently, falling on short-duration issues but rising otherwise.
Policy stance
Powell addresses labor market slowdown concerns
At his post-meeting news conference, Powell reiterated concerns about the labor market's slowdown in both supply and demand for workers. He said this is "unusual in this less dynamic and somewhat softer labor market." The decision to cut rates, he said, puts monetary policy in a "more neutral" position rather than moderately restrictive. This indicates the Fed's approach toward maintaining economic stability amid changing conditions.
Future projections
Fed officials' projections for future rate cuts
Along with the current rate decision, Fed officials have indicated their expectations for future cuts in the "dot plot." The grid shows a wide range of views, with one dot suggesting a total of 1.25% points in additional reductions this year. Nine out of 19 participants forecast just one more cut this year, while 10 expect two more before December's end.