Fed Not Playing Soft! FOMC Trims Interest Rates Aggressively By 50 Bps, First Cut In Four Years

Fed Policy Meet: The US Federal Reserve has surprised economists and the market with a 50 bps rate cut, an aggressive approach to the first move in the easing campaign since 2020. This is higher than the majority consensus of a soft 25 bps cut in the September 2024 policy. FOMC committee led by chair Jerome Powell seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.

In its latest policy, FOMC said, "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.

Considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.

The aggressive rate cut comes after FOMC gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.

Fed said, "The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate."

Also, it added, "Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low."

In case of consumer price, Fed said, "Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated."

FOMC will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. It is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

Coming to the monetary policy stance, Fed said, the committee will continue to monitor the implications of incoming information for the economic outlook.

Further, FOMC signalled that it is prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals.

On further rate cut decision and policy stance, Fed said, "The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Lisa D. Cook; Mary C. Daly; Beth M. Hammack; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Voting against this action was Michelle W. Bowman, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting.