📉 Exceeding expectations: The Fed cut interest rates by 50 basis points in a single move, the first in four years!
On September 19, the Fed announced a 50 basis point rate cut, bringing the federal funds rate to 4.75%-5.00%, the first rate cut since March 2020.
Previously, the Fed raised interest rates 11 times in a row from March 2022 to July 2023, with a cumulative rate hike of 525 basis points, keeping interest rates at a 23-year high of 5.25% to 5.5%.
The Fed's FOMC statement pointed out that inflation has made progress toward the 2% target, but is still slightly higher. The risks to employment and inflation targets are in balance. The median of the dot plot shows that the federal funds rate is expected to be 4.4% at the end of 2024, lower than the 5.1% expected in June.
At the same time, Fed Chairman Powell emphasized at a press conference that the Fed will flexibly adjust the pace of interest rate cuts based on economic conditions. He said that if the economy remains robust, interest rate cuts can be slowed down; if the labor market deteriorates, the Fed will respond accordingly. Powell also mentioned that if the July non-farm payrolls report is seen in advance, the first interest rate cut may be made at the July meeting.
Powell reiterated that the Fed is committed to maintaining a strong economy and the strength of the labor market. Although the current reduction in employment has led to an increase in the unemployment rate, the demand and supply relationship in the overall labor market is becoming more balanced, so changes in the labor market are not the main factor causing inflationary pressure. Therefore, the Fed continues to maintain strong confidence in the labor market.
🗣 Viewpoint:
Overall, the Fed's decision to cut interest rates and Powell's speech convey a message. That is, in the current complex economic environment, the Fed will maintain policy flexibility and adaptability to support stable economic growth and the continued health of the labor market.
At the same time, the Fed's decision and Powell's remarks convey a cautious and optimistic attitude towards the economic outlook. It is expected that the federal funds rate will gradually fall back to a more neutral level in the next few years.
💬 What do you think of Fed Chairman Powell's remarks on policy flexibility? Will the Fed's interest rate cut decision affect your financial planning? See the comments section!
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