The U.S. Federal Reserve on Wednesday lowered its benchmark interest rate by half of a percentage point, the first cut in 4 1/2 years, in a major policy shift less than seven weeks away from the presidential election.

After the two-day Federal Open Market Committee (FOMC) meeting, the central bank announced the decision to reduce the rate to the 4.75 to 5.0 percent range from its 23-year high, putting an end to its post-pandemic tightening cycle.

FOMC members’ new median economic projections showed that the federal funds rate would be cut to 4.4 percent at the end of this year — a hint that the Fed could further lower the rate later this year.

The rate reduction came as inflation has been getting closer to the Fed’s target of 2 percent. Last month, annual consumer inflation fell to 2.5 percent. The latest median projections indicated that Personal Consumption Expenditures (PCE) inflation may fall to 2.3 percent at the end of this year and 2.1 percent at the end of next year.

During a press briefing, Fed
Chair Jerome Powell said that the central bank has “in fact begun the cutting cycle now” while highlighting that the U.S. economy is “in a good shape.”

“Our decision today is designed to keep it there. More specifically, the economy is growing at a solid pace. Inflation is coming down closer to our 2 percent objective over time, and the labor market is still in solid shape. Our intention is really to maintain the strength that we currently see in the U.S. economy,” the chair said.

“We will do that by returning rates from their high-level … We’re going to move those down over time to a more normal level,” he added.

Source: Yonhap News Agency