WASHINGTON, Sept 19 (Bernama-Xinhua) -- The US Federal Reserve (Fed) on Wednesday slashed interest rates by 50 basis points amid cooling inflation and a weakening labour market, marking the first rate cut in over four years, reported Xinhua.
"The Committee has gained greater confidence that inflation is moving sustainably toward 2 per cent, and judges that the risks to achieving its employment and inflation goals are roughly in balance," the Federal Open Market Committee (FOMC), the central bank's policy-setting body, said in a statement.
"In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 per cent," the FOMC said.
This signals the start of an easing cycle. Starting from March 2022, the Fed had raised rates consecutively for 11 times to combat inflation not seen in forty years, pushing the target range for the federal funds rate up to between 5.25 per cent and 5.5 per cent, the highest level in over two decades.
After maintaining rates at the high level for over a year, the Fed's tight monetary policy faced pressure to pivot due to the easing of inflationary pressures, signs of weakening job market, and slowing economic growth.
"This decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2 per cent," Fed Chair Jerome Powell said at a press conference after the Fed's two-day meeting.
When asked about this "larger-than-typical rate cut", Powell acknowledged that it's "a strong move", while noting that "we don't think we're behind. We think this is timely, but I think you can take this as a sign of our commitment not to get behind."
The Fed chair pointed out that inflation "has eased substantially" from a peak of 7 per cent to an estimated 2.2 per cent as of August, referring to the personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge.
According to the Fed's latest quarterly summary of economic projections released on Wednesday, Fed officials' median projection of PCE inflation is 2.3 per cent at the end of this year, down from 2.6 per cent in June projection.
Powell noted that in the labour market, conditions have continued to cool. Payroll job gains averaged 116,000 per month over the past three months, "a notable step down from the pace seen earlier in the year," he said, adding that the unemployment rate has moved up but remains low at 4.2 per cent.
The median unemployment rate projection, meanwhile, showed that unemployment rate would rise to 4.4 per cent at the end of this year, up from 4.0 per cent in June projection.
The quarterly economic projections also showed that Fed officials' median projection for the appropriate level of the federal funds rate will be 4.4 per cent at the end of this year, down from the 5.1 per cent in June projection.
"All 19 of the (FOMC) participants wrote down multiple cuts this year. That's a big change from June," Powell told reporters, referring to the closely-watched dot plot, where each FOMC participant sees the Fed funds rate heading.
The newly released dot plot shows that nine out of the 19 members expect the equivalent of 50 more basis points of cuts by end of this year, while seven members expect a 25 basis point cut.
"We are not on any preset course. You will continue to make our decisions meeting by meeting," Powell stated.
-- BERNAMA-XINHUA
