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The US Federal Reserve made its first interest rate cut in over four years on Wednesday, lowering the key lending rate by half a percentage point. This significant move reduces borrowing costs just weeks before the November presidential election, affecting everything from mortgages to credit cards.
This reduction signals a shift away from the Fed’s previous strategy of high interest rates aimed at curbing demand. With inflation easing toward the central bank’s 2% target and a cooling labor market, the decision comes as the economy remains unexpectedly resilient post-COVID.
The rate cut is likely to benefit Democratic presidential candidate Kamala Harris, currently serving as Vice President, as she faces Republican rival and former president Donald Trump. Harris responded positively, emphasizing the continued work needed to reduce prices. Meanwhile, Trump speculated that the Fed’s decision was either an admission of a “bad economy” or a political move, while acknowledging the size of the cut.
US stock markets dipped after the announcement. The Fed’s policymakers voted 11-to-1 in favor of lowering the benchmark rate to between 4.75% and 5.00%. They also indicated plans for further cuts this year and into 2025.
Fed Chair Jerome Powell explained that the reduction was a recalibration of policy due to improvements in inflation and sustainable employment levels, marking the start of a new phase. While the cut was widely expected, the size of the reduction surprised some analysts.
The decision reflects recent weaker job data and favorable inflation news, though economists are divided on the Fed’s next steps. Powell reaffirmed the central bank’s independence amid political scrutiny, asserting that the Fed’s decisions remain uninfluenced by any political agenda.
