US Fed cuts 50 bps rate: Here're key takeaways from Jerome Powell statement

US Fed rate cuts: The last time the Federal Open Market Committee (FOMC) cut by half percentage was in 2008 during the global financial crisis

US Fed rate cuts: The US Federal Reserve, on Wednesday, September 18, 2024, announced its decision to cut the interest rate by half a percentage or 50 basis points to fight off a slowdown in the labor market.

"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 Fed said.

This was the first rate cut since the early days of the Covid pandemic. The last time the Federal Open Market Committee (FOMC) cut by half a point was in 2008 during the global financial crisis.

 

The decision was largely in-line with what the markets were expecting. The policy decision, as per the Fed, was taken considering the ease in inflation and the job market. However, it also said that inflation worries still loom.

"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. Inflation has made further progress toward the Committee’s 2 per cent objective but remains somewhat elevated," Fed's release read.

Further, the Fed will continue reducing its holdings of Treasury securities agency debt and agency mortgage 'backed securities and monitor the implications of incoming information for the economic outlook. An agency mortgage is a mortgage that's backed by a government-sponsored enterprise (GSE).

Here are key takeaways from FOMC meet:

>> The Fed noted a slowdown in job gains and says inflation "has made further progress toward the committee's 2 per cent objective but remains somewhat elevated".

>> The Fed committee has gained greater confidence that inflation is moving sustainably toward the 2 per cent goal.

>> Statement noted that risks to achieving employment and inflation goals "are roughly in balance".

>> FOMC voted 11 to 1 to lower the benchmark rate by 50 basis points to a target range of 4.75 per cent to 5 per cent the first rate cut in more than four years.

>> Fed Governor Michelle Bowman voted against the decision in favour of a smaller, quarter-point cut. This was the first such dissent since June 2022 and the first time a Fed governor has dissented since September 2005.

>>"Dot plot" of rate projections shows the rate could be lower by a percentage point by the year-end, implying two more quarter-point cuts or one larger, half-point cut; nine of 19 officials penciled in 75 basis points of cuts or less. The dot plot is a visual representation of a number line that shows the value that occurs several times in data using dots.

>> The Fed said it is "strongly committed to supporting maximum employment" in addition to returning inflation to its 2 per cent goal.

>> FOMC said it will continue to monitor the implications of incoming information for the economic outlook. The Committee would also be prepared to adjust the stance of monetary policy, as appropriate, if risks emerge.