The Federal Reserve yesterday announced that it is lowering the target rate for benchmark federal funds by 0.5%, to 4.75% to 5%, citing slower job gains, the unemployment rate, and to some extent stabilizing inflation.
“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 4¾ to 5 percent,” the central bank said in its policy statement. “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.”
Eleven of 12 Fed voters backed the cut.
According to reporting by The Wall Street Journal, the rate cut “should provide some immediate relief to consumers with credit card balances and to small businesses with variable-rate debt. Long-term borrowing costs — on everything from mortgages to corporate debt — have already been declining in anticipation of a series of rate cuts this fall, particularly after [Fed chairman Jerome] Powell last month said reductions were on the way.”
The committee added that it seeks to achieve maximum employment and a long-term inflation rate of 2% in setting the rates.
“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 committee said in the statement. “The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate.”
“High interest rates slow the economy by making it more expensive to borrow to buy a house or expand a business, which weighs on both demand and inflation, but also on hiring,” said a report in The New York Times. “The Fed has been trying to strike a careful balance. Officials have aimed to cool growth enough to ensure that price increases return to normal without cooling it so much that the unemployment rate soars and the economy tips into a recession.”
