The Fed Cuts Rates for the First Time Since 2020: What Are the Consequences?

The US Federal Reserve (Fed) announced on Wednesday a 0.5 point cut in its key rates to 4.75-5.00%, a first since 2020. This decision marks the beginning of a cycle of monetary easing after several increases aimed at combating inflation, which had pushed rates to 5.25-5.50%.

Why is the Fed cutting rates?

Inflation, the Fed's main concern in recent years, is starting to slow. The consumer price index (CPI) fell to 2.5% in August, its lowest level since February 2021. However, the rate cut this time comes for another reason: rising unemployment is now worrying the central bank.

A struggling job market

In August, the US private sector created only 99,000 jobs, compared to 111,000 in July, a figure well below the 140,000 expected by analysts. The job market is deteriorating, forcing the Fed to adjust its policy. Its mission is not only to stabilize prices, but also to ensure full employment.

What are the prospects?

The Fed plans to lower its rates by a total of half a point by the end of 2024 to support the economy and encourage job creation. However, the institution will have to juggle the risk of a return of inflation with the need to revive the job market.

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