The US Federal Reserve on Wednesday reduced its key interest rate by 50 basis points to 4.75-5.00% "In a near-unanimous decision (11-1), the first cut since the pandemic. The Federal Open Market Committee lowered the rate for the first time in more than four years, in line with expectations, according to a statement by the US Federal Reserve.
The decision came as inflation remains somewhat elevated despite progress toward the Fed's 2% objective. “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.
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A Bloomberg survey of economists had predicted a rate cut of 25 or 50 basis points, with a majority expecting the latter.
The Federal Reserve's rate cut followed eight consecutive meetings where the rate remained unchanged. Last year, the Fed raised the benchmark rate by 25 basis points to its highest level in 22 years.
The US core consumer price index, which excludes food and energy, increased by 0.3% in August and 3.2% from the previous year. The rise was driven primarily by higher housing costs, according to data from the US Bureau of Labor Statistics.
The Fed has expressed caution about the economic outlook, noting uncertainty and the need to monitor risks to both its employment and inflation goals. "In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook," it said.
In addition to inflation concerns, the US job market showed signs of improvement. The unemployment rate dropped to 4.2%, its first decline in five months, driven by a reduction in temporary layoffs. Wages also increased by 0.4% in average hourly earnings.
The US economy grew faster in the second quarter of the year than previously reported. Gross domestic product increased at an annualised rate of 3%, up from the earlier figure of 2.8%, driven by stronger consumer spending, according to the Bureau of Economic Analysis.
Catch all the live updates on the rate cut announcement here.
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