The US rate-setting panel slashed the benchmark rate by 50 basis points, but signalled a slower pace of future rate cuts, underlining that it does not expect the era of cheap money to return
Federal Reserve Chairman Jerome Powell speaks during a news conference following the September meeting of the Federal Open Market Committee at the William McChesney Martin Jr. Federal Reserve Board Building on September 18, 2024 in Washington, DC. The Federal Reserve announced today that they will cut the central bank’s benchmark interest rate by 50 basis points to a new range of 4.75%-5%.
Image: Anna Moneymaker/Getty Images
After holding the policy rate for 14 straight months, the Federal Open Market Committee (FOMC) slashed the benchmark rate, which stood at a 23-year high in the range of 5.25 percent to 5.5 percent, by 50 basis points, for the first time in four years, to manoeuvre a ‘soft-landing’ and save the world’s largest economy from crashing into a feared recession.
The US central bank, since March 2022, has cumulatively raised the policy rate by 5.25 percent to control rising price levels. US inflation declined from its historic peak of 9.1 percent in June 2022 to a three-year low of 2.5 percent in August, marginally above the rate-setting panel’s target of 2 percent.
Immediately after the US Federal Reserve announced the rate cut, the S&P 500 and the Dow Jones Industrial Average hit fresh highs. But intriguingly, despite the jumbo move by the Jerome Powell-led committee, the US stock markets ended the trading session in the red as investors digested the fine print of the monetary policy outcome.
The Summary of Economic Projections (SEP), or the dot-plot, shows a clear shift in forecasts of the rate trajectory in the coming months: 19 FOMC members see the benchmark rate at 4.4 percent by CY24-end. The US central bank estimates interest rates at 3.4 percent next year. It sees another half-point cut in 2026 with rates likely to fall to 2.9 percent. The message is clear. The US Federal Reserve is in no rush to go back to the world of ultra-low interest rates or the era of cheap money.
“I do not think that anyone should look at this and say, ‘Oh, this is the new pace’,” Powell emphasised at a post-meeting press conference. “There’s nothing in the SEP that suggests that the committee is in a rush to get this done. This process evolves over time,” he reiterated, terming the rate cut as a “recalibration” of US monetary policy rather than a pivot. “We are not on any preset course. We will continue to make our decisions meeting by meeting.”