In a bold move, the Federal Reserve slashed its benchmark interest rate by 50 basis points on Wednesday, bringing it to a new range of 4.75%-5%. This marks the first rate cut since March 2020, signaling a significant shift in the central bank’s strategy to provide relief from elevated borrowing costs.
This decision, which lowers rates on everything from mortgages to credit cards, underscores the Fed’s urgency to alleviate economic strain as inflation cools. Despite the dramatic reduction, the decision wasn’t unanimous. Fed Governor Michelle Bowman dissented, advocating for a more cautious quarter-point cut. Nevertheless, the half-point reduction sends a clear message: the Fed is committed to swift action to prevent further economic slowdowns.
Fed officials also projected additional rate cuts by the end of 2024, adjusting their previous forecast of just one cut this year. Meanwhile, the unemployment rate is expected to rise to 4.4% by the end of the year, up from 4.2% in August.
Despite concerns, the Fed’s aggressive measures have avoided a recession, with inflation now well below the 40-year highs seen in 2022. While the Fed’s efforts to control inflation without causing significant job losses have been practical, the economic landscape remains uncertain, particularly regarding the job market.
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