Fed Cuts Interest Rate By 50 bps, Signals End To Inflation Fight

The Federal Reserve has cut its benchmark interest rate by an unusually large half-point, a dramatic shift after more than two years of high rates that helped tame inflation but also made borrowing painfully expensive for American consumers, Christopher Rugaber reported for the Associated Press (AP).

The Fed has come closer than before to declaring victory over inflation.

The rate cut, the Fed’s first in more than four years, reflects its new focus on bolstering the job market, which has shown clear signs of slowing. Coming just weeks before the presidential election, the Fed’s move also has the potential to scramble the economic landscape just as Americans prepare to vote.

The central bank’s action lowered its key rate to roughly 4.8%, down from a two-decade high of 5.3%, where it had stood for 14 months as it struggled to curb the worst inflation streak in four decades.

Inflation has tumbled from a peak of 9.1% in mid-2022 to a three-year low of 2.5% in August, not far above the Fed’s 2% target.

The Fed’s policymakers also signaled that they expect to cut their key rate by an additional half-point in their final two meetings this year, in November and December. They envision four more rate cuts in 2025 and two in 2026.

In a statement and a news conference with Chairman Jerome Powell, the Fed came closer than it has before to declaring victory over inflation.

“We know it is time to recalibrate our (interest rate) policy to something that’s more appropriate given the progress on inflation,” Powell said. “We’re not saying, ‘mission accomplished’ ... but I have to say, we’re encouraged by the progress we have made.”

He added: “The U.S. economy is in a good place, and our decision today is designed to keep it there,” Alex Veiga, Paul Wiseman, Josh Boak, and Stan Choe also reported for AP.