US Fed cuts rates by larger than usual half-percentage point

Policymakers see the Fed’s benchmark rate falling by another half of a percentage point by the end of this year

The United States Federal Reserve has cut interest rates by half of a percentage point, kicking off what is expected to be a steady easing of monetary policy with a larger-than-usual reduction in borrowing costs that follows growing unease about the health of the job market.

“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,” policymakers on the US central bank’s rate-setting committee said in their latest statement on Wednesday, which drew a dissent from Governor Michelle Bowman, who favoured a quarter-percentage-point cut.

Policymakers see the Fed’s benchmark rate falling by another half of a percentage point by the end of this year, another full percentage point in 2025 and a final half of a percentage point in 2026 to end in a range of 2.75 percent to 3 percent.

The endpoint reflects a slight upgrade, from 2.8 percent to 2.9 percent, in the longer-run federal funds rate, considered a “neutral” stance that neither encourages nor discourages economic activity.

Even though inflation “remains somewhat elevated”, the Fed statement said policymakers chose to cut the overnight rate to the 4.75 percent to 5 percent range “in light of the progress on inflation and the balance of risks”.