The U.S. Federal Reserve has made its first interest rate cut in over four years, lowering its key rate by 0.5 percentage points to a range of 4.75% – 5%. This larger-than expected cut, led by Fed Chair Jerome Powell, is aimed at easing concerns over rising prices and a weakning job market. The decission is seen as a relief for borrowers facing high rates for over two decades, with predictions that further reductions may happen later this year.
Powell Stated that the bold move was meant to ensure that high borrowing costs, originally imposed to control inflation, wouldn’t harm the broader U.S. economy. Despite a strong labor market, the Fed is cautious, wanting to preserve its health. The Fed’s action follows similar moves by central banks in Europe, the UK, and canada. However, some experts, like Isaac Stell from wealth club, wonder what the Fed sees ahead to warrant such an aggressive step.
ince 2022, the Fed had been raising interest rates to slow down economic activity and combat the highest inflation rates since the 1980s. Higher borrowing costs led to more expensive mortgages, car loans, and other debts, ultimately cooling down spending. Now the inflation is easing, the focus has shifted to potential damage high rates cause to economy.
The U.S. unemployment rate has risen to 4.2%, up from 3.7% earlier in the year. Officials now predict inflation will drop faster than initially expected, but the jobless rate could climb further to 4.4% by the end of 2024. Powell admitted the labor market had been overheated but downplayed fears of a looming recession. He remains confident that the economy will not experience a significant downturn.
