US Fed FOMC Meeting: Led by chairman Jerome Powell, the US Federal Reserve on Wednesday announced a 25 basis points rate cut after the FOMC meeting. “In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4-1/4 percent,” read the FOMC statement.“Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated,” it added.While all members of FOMC voted in favour of the 25 basis points cut, Stephen I. Miran, the Donald Trump pick, recently appointed as US Fed governor voted for a 50 basis points cut. The FOMC has pencilled in two more rate cuts for this year. It has also raised the GDP growth forecast to 1.6% from its June projection of 1.4% while keeping the outlook for inflation and unemployment unchanged.This is the first rate cut by the US Fed in 2025 even as it navigates through conflicting pressures, including pressure from US President Donald Trump and potential internal disagreements amongst its members. Trump has consistently been slamming Powell-led US Fed for not cutting rates, calling the Fed chairman ‘too late’.
US Federal Reserve rate cut: Top points to know
- US Fed aims to maintain peak employment levels while targeting a long-term inflation rate of 2 percent. The economic outlook continues to show significant uncertainty, with the Committee noting increased risks to employment opportunities.
- When evaluating potential changes to the federal funds rate target range, the Committee shall thoroughly analyse new data, future prospects and risk factors.
- It maintains its commitment to decrease holdings of Treasury securities, agency debt and agency mortgage-backed securities.
- The FOMC remains firmly dedicated to fostering maximum employment whilst bringing inflation back to its 2 percent target.
- The Committee shall continue evaluating incoming information’s impact on economic prospects whilst determining appropriate monetary policy measures.
- Should any risks surface that might hinder achieving the FOMC’s objectives, it is ready to modify monetary policy accordingly.
- FOMC’s evaluations shall encompass diverse factors, including labour market conditions, inflation metrics and expectations, alongside financial and global economic developments.
Stock markets and economists had widely expected the 25 basis points rate cut. Following its previous reduction in December, the Federal Reserve had maintained interest rates within the range of 4.25 percent to 4.50 percent.The Federal Reserve determines the federal funds rate, which governs interbank lending. Although consumers don’t directly experience this rate, its fluctuations influence interest charges on various financial products, including credit cards, vehicle financing, home loans and other banking services.When establishing this rate, the Federal Reserve pursues two primary objectives, commonly referred to as the “dual mandate”: controlling prices of goods and services, whilst promoting maximum employment.Conventionally, the US Federal Reserve raises rates to combat inflation and reduces them to stimulate economic expansion and job creation. At present, the US Fed faces a complex situation where inflation exceeds their 2% objective, yet employment figures remain suboptimal, creating a challenging policy environment.Current data indicates increasing difficulty in job acquisition, potentially compelling the Federal Reserve to prioritise employment concerns over inflationary pressures.The Federal Reserve has maintained steady rates this year, concerned that rate reductions could increase inflation, particularly given their worries about how President Donald Trump’s tariffs might affect product prices. Inflation remains persistently above the Federal Reserve’s 2% benchmark.
