The U.S. central bank has cut interest rates for the first time in over four years, and it’s a big cut, marking the beginning of the end of what’s been the highest cost in two decades of borrowing money in a move that will send ripples across markets, businesses, consumers and politics.
The half-point cut will make it easier for people to buy homes and cars and take some pressure off highly indebted businesses, in media, entertainment and elsewhere. Donald Trump has said a cut would help Democrats in the upcoming election.
“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 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the Fed‘s Open Market Committee said at the close of its scheduled two-day meeting. “The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.”
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” the committee said.
A cut today had been largely priced into stocks but media and tech shares were up pretty much across the board from Disney, Comcast and Warner Bros. Discovery to Fox and Roku, Apple and Snap, Lionsgate and TKO.
The Fed last cut rates in March of 2020 as Covid advanced and the economy started grinding to a halt. But coming out of the pandemic, it began to raise rates to stem inflation. The prices of goods and services shot higher over the past two years in part after a pent-up spending exploded. President Joe Biden and VP and 2024 Presidential candidate Kamala Harris among others have also accused companies of price gouging.
The Fed had promised to start lowering rates when inflation steadied at or near its historic 2% benchmark, which it did. The last reading of 2.7% is much better, but still too high, said Fed chair Jerome Powell at a press conference this afternoon.
Raising interest rates cools down the economy but there had also been concern that prolonged high rates could lead to a recession. There was some hope of a rate cut in July but that Fed meeting passed without, albeit with some promising comments. A cut at the September meeting was considered a given, the question being whether it would be a quarter or a half point decrease, the Fed chose the more expansive option.
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