US interest rates fell for the first time in over four years following the FOMC’s September meeting. The FOMC implemented a relatively aggressive cut of 50 basis points, reducing the key federal funds rate to a range of 4.75% to 5%.
- One FOMC member voted for a smaller cut of 25bp
- Further easing is expected before the end of 2024
- Inflation is expected to reach its 2% target in 2026
US interest rates fell for the first time in over four years following the Federal Open Market Committee’s (FOMC’s) September meeting . The FOMC implemented a relatively aggressive cut of 50 basis points, reducing the key federal funds rate to a range of 4.75% to 5%. Although the cut was expected, its potential scale – whether 25 or 50 basis points – had been widely discussed, and the decision was not unanimous, with one committee member favouring a less aggressive cut of 25 basis points.
“This recalibration of our policy stance will help maintain the strength of the economy” (Fed Chair Jerome Powell)
Inflationary pressures have continued to moderate in the US, easing to 2.5% in August, and the FOMC said it has “greater confidence that inflation is moving sustainably towards 2%”. According to Federal Reserve (Fed) forecasts , inflation is expected to fall to 2.1% by the end of 2025 and to reach the Fed’s 2% target by the end of 2026. However, the rate of unemployment has risen to 4.2%, and Fed officials predict it will climb to 4.4% by the end of the year.
Fed Chair Jerome Powell commented: “This recalibration of our policy stance will help maintain the strength of the economy and the labour market and will continue to enable further progress on inflation as we begin the process of moving towards a more neutral stance.” Looking ahead, the Fed predicts the federal funds rate will decline to 4.4% by the end of this year, 3.4% next year, and 2.9% by the end of 2026.
