US Fed Cuts Interest Rate By 50 bps, Jerome Powell Says Upside Inflation Risks Have Diminished
US Fed Cuts Interest Rate By 50 bps, Jerome Powell Says Upside Inflation Risks Have Diminished
Reported By: Mohammad Haris

News18.com

Last Updated: September 19, 2024, 01:06 IST

Follow live updates from the US Fed Meeting September 2024 as the FOMC announces its interest rate decision. Get real-time insights on how Jerome Powell's remarks impact global and India markets.

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US Fed Chair Jerome Powell.
US Fed Chair Jerome Powell.

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US Fed Meeting: The US Federal Reserve on Wednesday cut key interest rates by 50 basis points to 4.75-5 per cent. This is the first rate cut in more than four years. The two-day meeting of the Federal Open Market Committee (FOMC), the rate-setting authority in the US, concluded on Wednesday. While addressing the media after the FOMC meeting, US Fed Chair Jerome Powell said the US economy is strong overall and the labour market has cooled while the inflation has substantially eased.

The US federal fund rates now stand in the range of 4.75-5 per cent.

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Addressing reporters post the FOMC meeting, US Fed Chairman Jerome Powell on Wednesday said, “Our (American) economy is strong overall and has made significant progress towards our goal over the past two years. The labour market has cooled from its formerly overheated state. Inflation has eased substantially from the peak of 7 per cent to an estimated 2.2 per cent in August."

He also said inflation risks have diminished.

The US equity markets welcomed the 50 basis points cut and the US Fed chair Jerome Powell’s commentary. The US stock market surged with the equity indices Dow 30 and Nasdaq trading higher by 250 points (0.60 per cent) and 190 points (1.08 per cent), respectively. However, the dollar index was down by 0.54 per cent to 100.3460.

The bitcoin, however, was trading down by 0.26 per cent at Rs 50,87,680.5

This rate cut, which comes after a gap of four years, is expected to be only the first in a series of US Fed rate cuts that will extend into 2025. The last interest rate cut in the US took place on March 15, 2020.

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“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 per cent. 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 FOMC said in a statement.

The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective, it added.

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate," the FOMC statement said.

The US central bank held the interest rates steady 11 times for the past one year since July 2023. Before that, between March 2022 and July 2023, the US Federal Reserve raised the interest rates by 525 basis points to control inflation, which hit a multi-decade high amid the Ukraine-Russia war and COVID restrictions.

A basis point is 100th of a percentage point.

Last month, Chair Jerome Powell made clear in a high-profile speech in Jackson Hole, Wyoming, that Fed officials feel confident that inflation has largely been defeated. It has plummeted from a peak of 9.1% in June 2022 to 2.5% last month, not far above the Fed’s 2% target.

US Fed Rate Cut: How Will It Impact Indian Stock Market, Gold Prices?

Impact On Stocks: Over time, US Fed rate cuts will lower borrowing costs for mortgages, auto loans and credit cards, as well as for business loans. Business spending could grow, and so could stock prices in the US. Companies and consumers could refinance loans into lower-rate debt. The higher spending is expected to boost the US economy, thus impacting the Indian markets positively.

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Impact On Gold Prices: A cut in rate generally tends to support higher gold prices due to factors like lower opportunity costs, a weaker dollar, inflation concerns and a shift in market sentiment. However, actual price behaviour may be uncertain and unstable because gold prices are subject to factors far beyond the reach of the US Federal Reserve.

At present, gold prices in the international market are hovering near their lifetime highs due to demand optimism amid surging geopolitical tensions, feeble global growth outlook and hopes of a US rate cut.
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Key Points
🔴This week's gathering of the central bank's Federal Open Market Committee carries an uncommon air of mystery.
🔴Will it be the traditional quarter-percentage-point, or 25-basis-point, rate reduction, or will the Fed take an aggressive first step and go 50 basis points, or half a point? Fed watchers are unsure.
🔴Beyond the quarter vs. half debate, this will be an action-packed Fed meeting, with updates on projections for rates cuts in the future as well as adjustments to economic estimates.
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