The Federal Reserve announced on the 18th local time that it would lower the target range of the federal funds rate by 50 basis points to 4.75% to 5.00%. This is the first rate cut by the Federal Reserve since March 2020, marking a shift in monetary policy from a tightening cycle to an easing cycle.

The decision was made after the Federal Reserve ended its two-day monetary policy meeting. In a statement, the Federal Open Market Committee said it had "greater confidence" that the inflation rate would continue to move toward the 2% target, and believed that the risks between employment and price stability were roughly balanced. Fed Chairman Powell said at a press conference after the meeting that the 50 basis point rate cut was a "strong action" and believed it was a timely move.

Since March 2022, in response to domestic inflation, the Federal Reserve has raised interest rates 11 times in a row, with a cumulative increase of 525 basis points. Over the past year, the Federal Reserve has kept interest rates between 5.25% and 5.5%, reaching a 23-year high. However, with inflation easing and the job market weak, the Federal Reserve is under pressure to adjust its policy. Powell said in August that the "time has come" to adjust monetary policy, almost explicitly hinting that the September meeting will cut interest rates.

The improvement in the inflation situation and the weakness in the job market are the main reasons for the Fed's rate cut. Data show that the US consumer price index rose 2.5% year-on-year in August, close to the Fed's 2% target. Powell also mentioned that the personal consumption expenditure price index has fallen from a high of 7% to 2.2%, further indicating that inflationary pressure has eased significantly.

At the same time, the US job market has been sluggish. In the past three months, the average monthly increase in employment was only 116,000, and the unemployment rate rose to 4.2%. According to the latest economic outlook, the Fed expects the unemployment rate to rise to 4.4% by the end of this year.

The rate cut triggered fluctuations in the financial market. On the 18th, the three major stock indexes in the New York Stock Exchange fluctuated and fell, with the Dow Jones Industrial Average falling 103.08 points, the S&P 500 falling 16.32 points, and the Nasdaq Composite falling 54.76 points.

The rate cut was also accompanied by concerns about a US recession. Historical data shows that every time the Federal Reserve cuts interest rates significantly, it is often closely related to the occurrence of an economic recession. Therefore, the market generally believes that a rate cut may indicate economic weakness.