For the first time since 2020, the Federal Reserve Wednesday cut interest rates as expected amid falling inflation in the U.S. economy. Rates were cut by 50 basis points or a half percent.
File Photo by Jemal Countess/UPI | License Photo
Sept. 18 (UPI) — For the first time since 2020, the Federal Reserve on Wednesday cut interest rates as expected amid falling inflation in the U.S. economy. Rates were cut by 50 basis points, or a half percent.
The Federal Reserve’s FOMC said in a statement, “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%.”
Federal Reserve Chair Jerome Powell earlier had strongly indicated the likelihood of a rate cut.
The cut was made possible by inflation that has fallen from a COVID-19 pandemic high of 9.1% to the current inflation rate of 2.5%.
The Fed inflation target is 2%, but a rate cut was designed to help protect the economy from a recession after years of rising rates.
The FOMC Wednesday statement said, “The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance. “
Ahead of the announcement debate raged on if the cut will be the traditional one-quarter of a percent or a heftier one-half point.
According to CNBC, Mark Zandi, chief economist at Moody’s Analytics, said, “They have achieved their mandate for full employment and inflation back at target, and that’s not consistent with a five-and-a-half percent-ish funds rate target. So, I think they need to normalize rates quickly and have a lot of room to do so.”
While inflation is down sharply from its COVID-19 pandemic high of 9.1%, its current 2.5% remains off the Fed benchmark growth of 2%.
While hiring in the country has slowed, the unemployment rate remains low at 4.2%.
Housing continued to be a major driver of rising prices jumping 0.5% in August while prices in the core items – minus energy and food – increased by 0.3% last month.