Fed cuts interest rate by 0.25%

Fed cuts interest rates © utah51 - stock.adobe.com

In a move to sustain economic stability while addressing persistent inflation, The Federal Reserve announced a 0.25% reduction in the target range for the federal funds rate, which is now set at 4.5% to 4.75%. The decision is in response to indicators suggesting that economic activity has continued to expand at a solid pace. Despite signs of moderation in labor market conditions compared to earlier in 2024, the unemployment rate remains steadily low, indicative of continued resilience within job markets. Inflation, however, remains above the Fed’s 2% goal.

The last interest rate cut was a 0.5% cut in September 2024, which too came in response to signs of inflation and job growth easing. The Federal Open Market Committee (FOMC) continues work to balance its dual mandate of achieving high employment while stabilizing inflation rates at 2%, long term.

According to a news release following the Committee’s meeting, any additional rate adjustments will come as a result of future data and evolving economic conditions. They plan to proceed with caution, carefully monitoring inflation metrics, labor market trends and other financial developments. The Committee will also continue to scale back holdings of Treasury securities, agency debt and agency mortgage-backed securities, in support of the Committee’s broader monetary policy objectives.

“At today’s meeting, the Committee decided to lower the target range for the federal funds rate by 0.25%, to 4.5 to 4.75%,” Jerome H. Powell, chair of The Federal Reserve of the United States, said in his press conference opening statement. “We continue to be confident that, with an appropriate recalibration of our policy stance, strength in the economy and the labor market can be maintained, with inflation moving sustainably down to two percent. We also decided to continue to reduce our securities holdings. I will have more to say about monetary policy after briefly reviewing economic developments.”

The Committee will continue to monitor incoming information and economic indicators as part of their assessment of the appropriate stance regarding monetary policy. They will remain vigilant, considering a wide range of information, prepared to adjust their stance as new risks emerge.

“As the economy evolves, monetary policy will adjust in order to best promote our maximum employment and price stability goals,” Powell said in his opening statement. “…Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”