Today, it made its first rate cut since 2020 the Federal Reserve, reducing borrowing costs by 50 basis points.
Interest rates are being cut by 4.75-5%, while a second half-point cut is being considered by the end of 2024 to reach 4.25-4.50.
The US Federal Reserve’s monetary policy easing follows the most aggressive tightening of the money supply in 40 years, a reduction that was deemed necessary amid explosive geopolitical developments, a severe energy crisis and a persistent wave of demand.
Inflationary pressures have not gone away. But now the big monster facing central banks and governments is no longer inflation, but the threat of recession.
“Inflation is falling faster than expected”
In its announcement, following the conclusion of a meeting of its 12-member board of directors, the Fed notes that it now estimates greater certainty that inflation will fall faster than expected, falling to 2.1% in 2025.
In contrast, the Fed revised its unemployment forecast upwardsestimating that it will increase to 4.4% this year (from 4.2%) and in 2025.
The decision to reduce interest rates It was not unanimous, but it was adopted by 11 votes in favor and 1 against. Republican Michelle Bowman, appointed by Donald Trump in 2018, argued that the reduction should be smaller, a quarter of a point.
Today was the Fed’s last meeting before the November presidential election.
How are the actions of other central banks affected?
Note that the Fed lagged behind its counterparts the ECB, the Bank of England, and the central banks of Switzerland, Sweden, Canada and Mexico had already cut interest rates to support their economies.
Although all these monetary authorities took their own step without waiting for the Americans – who usually lead – they were eagerly awaiting Powell’s decisions. This is because this will determine how dynamic their own further rate cuts will be.
