Fed Cuts Rates for First Time in Four Years Amid Economic Uncertainty
1min read The Federal Reserve announced on the 18th that it would lower the target range for the federal funds rate by 50 basis points, bringing it down to 4.75% to 5.00%. This marks the Fed's first rate cut in four years.
Notably, the Fed projects the federal funds rate to be at 4.4% by the end of this year, aligning within the 4.25% to 4.5% range. By 2025, the rate is expected to decline to 3.4%, and further down to 2.9% by 2026.
This move follows a series of 11 rate hikes from March 2022 to July 2023, cumulatively raising rates by 525 basis points. The target range had been maintained at 5.25% to 5.5%, the highest level in 23 years.
Market reactions to the announcement were mixed. Initially, there was a significant uptick across major financial indicators such as gold and US stock indices. However, post-announcement commentary by Fed Chair Jerome Powell led to a reversal, with gains wiped out.
Powell emphasized that the Fed's path is not set in stone, indicating potential future adjustments in response to economic conditions. The Fed's forward guidance suggests both rate hikes and further cuts are possible based on upcoming data.
The Fed's latest economic forecasts also highlight an expectation for steady economic expansion with a focus on balancing inflation and employment goals. Yet, the statement underscores rising downward risks in the labor market.
Globally, the Fed’s decision has implications beyond the US, influencing stock markets and interest rates in other regions, reflecting its pivotal role in global economic stability.
