US Fed Rate Cut Highlights: Jerome Powell Goes For A 50 Bps Cut With 'Flexible Future' Talk

The US Federal Reserve on Wednesday reduced its key interest rate for the first time since the pandemic, in line with expectations. The Federal Open Market Committee lowered the rate for the first time in more than four years by 50 basis points to 4.75-5.00% in September, according to a statement.

The central bank had kept its key interest rate unchanged for eight consecutive meetings until July, after raising it by 25 basis points last year, bringing the benchmark rate to a 22-year high.

Here are the key highlights from the FOMC meet and Powell speech

Near-Unanimous Decision

The Fed Chair said there was "broad support" for the 50 basis point rate cut. One out of 12 FOMC members voted for a 25 basis point cut.

More Cuts Coming?

Here's the fed's latest dot plot:

• Median official expected to lower rates by 1 percentage point by year-end.

• This implies two more quarter-point cuts or one larger, half-point cut.

• Nine of 19 officials penciled in 75 bps of cuts or less.

• Median rate forecast for 2025 falls to 3.4% from 4.1% in June.

• This implies 4 additional quarter-point moves next year.

'Somewhat Elevated' Inflation

The Federal Reserve officials revised the inflation outlook downward to 2.3%, compared to 2.6% previously. For core inflation, the committee lowered its projection to 2.6%, a decrease of 0.2 percentage points from June.

Even though inflation has made further progress toward the Committee's 2% objective but remains 'somewhat elevated', the Federal Reserve said in a statement.

"The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance," the statement said.

Job Market Jitters

Federal Reserve officials have raised their expected unemployment rate for this year to 4.4%, up from the June projection of 4%.

Powell said the Federal Reserve has growing confidence that strength in the job market can be maintained as it adjusts its policy rate. He reiterated that the job market is not exerting inflationary pressure on the economy.

Besides, the Fed statement said, "The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance."

Flexible Future

Jerome Powell said the US Federal Reserve will not follow a fixed course and will evaluate data to make its future decisions. He said that the recent 50 basis point cut should not be seen as setting a new pace, and the Fed will continue monitoring fresh data to guide its actions.

"Our recalibrated policy stance will help maintain the strength of our economy and the labour market and continue to enable further progress on inflation as we begin the process of moving to a more neutral stance. We are not in a pre-set course," Powell said.