Published on: September 19, 2024
On September 18, 2024, the United States Federal Reserve lowered its policy rate by 50 basis points to a target range of 4.75-5.0%. This move, its first cut since 2020, was stronger than the 25-bps cut expected by markets.
In a press release, the Fed mentioned that its Open Market Committee (FOMC) “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.” It added: “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
The Fed’s cut is the first move since late summer 2023, when it capped a series of policy rate increases in response to high inflation. Its next decision is scheduled for November 7, 2024.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the Fed stated. “Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2% objective but remains somewhat elevated.”
Yesterday’s decision came with revised economic projections:
- The Fed kept its GDP growth outlook unchanged for 2025 at 2.0%, but increased its unemployment rate forecasts to 4.4% both for 2024 and 2025.
- Total inflation has been revised down by 0.3 percentage points this year (2.3%) and 0.2 percentage points (2.1%) in 2025.
- The central bank revised down its policy rate forecast from 5.1% to 4.4% this year, and from 4.1% to 3.4% for 2025.
The revised Fed forecasts show higher unemployment rates, lower inflation, and lower policy rates than in June 2024. These well-balanced forecast changes are consistent with logical economic dynamics. The extent of disinflation and incoming job creation data will go a long way in helping markets anticipate the Fed’s next steps.