Fed Cuts Rates 50bps, Signals Shift in Policy Stance

Washington, DC—The Federal Reserve cut its benchmark interest rate by 50 basis points on Wednesday, lowering the target range to 4.75%- 5.00%, more aggressively than many analysts had expected.

The U.S. Central Bank cited substantial progress in inflation toward its 2% target while noting that economic activity continues to expand steadily.

The more significant cut signals a shift in the Fed's policy stance after nearly two years of tightening.

"The Committee has 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,"

the Fed said in its policy statement.

Recent data shows the unemployment rate has increased but remains low at 4.2%. 

Job gains have slowed, averaging 116,000 per month over the past three months, down from earlier in the year.

The Federal Open Market Committee voted 11-1 for the rate cut. 

The lone dissenter, Michelle Bowman, preferred a more minor 25 basis point reduction.

In a press conference, Fed Chair Jerome Powell said that the committee is not on a preset course for future rate decisions. 

"We will continue to make our decisions by meeting and carefully assessing incoming data, the evolving outlook, and the balance of risks,"

Powell stated.

The Fed will continue reducing its holdings of Treasury and agency securities. Since the runoff began in June 2022, its balance sheet has shrunk by about $1 trillion.

Policymakers updated their economic projections, with the median forecast now showing the federal funds rate at 4.4% by year-end 2024 and 3.4% by end-2025, lower than June's projections.

The central bank expects GDP growth to remain solid at 2% over the next few years, while the unemployment rate is projected to end 2024 at 4.4%, up from June's forecast of 4.0%.

Inflation projections were revised down. 

PCE inflation is expected to reach 2.3% this year and 2.1% in 2025 before settling at the 2% target thereafter.