“The Federal Reserve has declared victory in the war on inflation,” Rogé Karma reports. “The Fed’s announcement, just seven weeks before the presidential election, could also have a political impact.”: https://t.co/hBnjqKHnuP
— Tom Nichols (@RadioFreeTom) September 18, 2024
The Federal Reserve announced a significant half-point interest rate cut on Wednesday, marking the first rate reduction since the early days of the Covid-19 pandemic. The decision comes as the central bank shifts its focus to bolstering the job market amid signs of moderating inflation and a weakening labor market. In a statement, the Federal Reserve expressed greater confidence that inflation is moving sustainably toward its 2 percent target and that the risks to achieving its employment and inflation goals are roughly balanced.
This is going to provide tremendous relief for Americans, particularly for first-time home buyers.
The Biden-Harris administration continues to make strides in bringing down inflation & strengthening our economy. This step by the federal reserve is proof.https://t.co/GCfKKrpEzh
— Senator Ben Cardin (@SenatorCardin) September 18, 2024
The benchmark federal funds rate has now been adjusted to between 4.75% and 5%, which affects short-term borrowing costs for banks and, in turn, impacts mortgages, auto loans, and credit cards. Federal Reserve Chair Jerome Powell emphasized that this rate cut does not signify the beginning of a series of 50 basis point reductions. “We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has sometimes come with this inflation,” Powell stated.
“There are always winners and losers when there is a change in interest rates.” Ivey's Stephen Foerster spoke to @CNBC about today's interest rate cut in the United States. https://t.co/ksFseJpcrH
— Ivey Business School (@iveybusiness) September 18, 2024
The decision led to a volatile market response, with the Dow Jones Industrial Average initially surging before settling slightly lower by the end of the day.
Fed’s strategic move in market adjust
Economic indicators continue to show mixed signals, with job gains slowing and the unemployment rate edging up to 4.4%, while gross domestic product (GDP) has been steadily rising and consumer spending remains strong.
The rate cut comes despite inflation running around 2.5%, still above the Fed’s 2% target.
“Lower rates should bring billions more in long-term investments off the sidelines, and create thousands more long-term jobs," says @mikemadowitz in @washingtonpost.
The answer for the Fed today is clear ➡️ It's time to cut rates. https://t.co/VZvM6yLRfD
— Roosevelt Institute (@rooseveltinst) September 18, 2024
Powell and other policymakers have highlighted the significant slowdown in hiring rates, with the current hiring rate as a share of the labor force at its lowest since unemployment was above 6%. Reactions to the Fed’s decision have been mixed.
Former President Donald Trump suggested that the rate cut could be politically motivated, while Vice President Kamala Harris welcomed the move as beneficial for Americans who have struggled with high prices. On Capitol Hill, Republican House Speaker Mike Johnson called the timing “a little suspect,” while Democratic Rep. Alexandria Ocasio-Cortez praised the decision as “long overdue.”
The Fed’s action potentially sets the stage for further rate cuts, with investor sentiment vacillating leading up to the meeting.
As one of the central pillars of the global financial system, the Fed’s decision is expected to resonate with other central banks worldwide, several of which have already started their own rate-cutting cycles.
