There Fed opens a new era and cuts the taxi of interest by half a point, in what is the first reduction since 2020. The decision to bring the cost of money to a range between 4.75% and 5% aims to prevent the gradual cooling of the job market turns into a complete stop. And it shows the bank’s determination to hit the target of a soft landing for theeconomyavoiding a much feared recession.
And, surely, rates will fall by another half a point by the end of the year, deciding meeting for meeting. «Theeconomy is strong and we are committed to keeping it that strong,” the president said Jerome Powell noting how average GDP growth is estimated to remain “solid” at +2% with a rate of unemployment at 4.4% at the end of this year and ainflation to 2.1% in 2025. «The upside risks for theinflation have dropped,” he added Powell that, while Wall Street has shifted into positive gear and thegold has hit new records, he noted how the patient approach adopted by the Fed over the last year it has paid off on the price front.
In announcing its historic decision, the American central bank reiterated its “commitment to maximum employment and ainflation to 2%», which are the objectives set in his mandate. «We have gained greater confidence in a sustainable decline ininflation towards 2%, and we believe that the risks to achieving our objectives areemployment andinflation are more balanced. The economic outlook is uncertain, and we will be alert to risks,” assured the Fed in the statement released at the end of the meeting, from which it emerges that the decision was not unanimous. The governor Michelle Bowmanin fact, would have preferred a cut of a quarter of a point.
By the end of the year, the Fed estimates a further drop in the cost of money of half a point, probably 25 basis points for each of the remaining meetings for 2024. After an aggressive campaign of rate hikes (11 since the beginning of 2022) to stop the gallop of theinflationthe central bank has opened the era ofmonetary easingreaching out to Americans who have been struggling for years with a high cost of money that has made mortgages and credit cards more expensive, while at the same time slowing down the real estate market.
The cut is also set to accelerate investment growth, although it will take time to see the effects. In short, the cut will help theeconomy two months from American electionsexposing the Fed to criticism. With today’s decision, the central bank is displeasing those Democrats who were asking for a 75 basis point cut and all the Republicans who were pushing to postpone any decision until after the vote.
«This cut shows that Powell He waited too long to cut the taxi“, commented the liberal senator Elizabeth Warrencalling for further reductions in the cost of money. The next meeting from the Fed It falls right on the day after the electionsfreeing the hands to Fed although the results – according to observers – will not yet be known. For the Fed the cut in a context of economy solid but slowing down. Never before has it found itself in a similar situation. The objective of Powell it is that of a soft landingwhich would be a victory for the Fed. In the last six cycles of monetary easing Since 1989, only in two cases – in 1995 and 1998 – has the American central bank managed to avoid a recessionIn both cases the driver was Alan Greenspan While Jerome Powell hopes to achieve its success. The stock market and that of the bond they anticipate that the Fed will hit a soft landing 1995 style, and the half-point cut seems to point – according to observers – exactly in this direction.