"The Committee is more confident that inflation is progressing sustainably toward 2 percent and assesses that the likelihood of achieving the maximum employment and inflation goals is roughly balanced," policymakers on the Fed's interest rate-setting committee said in a statement.
According to Reuters, this drastic interest rate cut by the FED only met with opposition from Governor Michelle Bowman - who supported a 0.25% reduction.
Notably, after this interest rate cut, the FED is expected to cut interest rates by another 0.5% this year, 1% in 2025 and a final 0.5% in 2026 to have an interest rate in the range of 2.75% - 3.00%.
"This decision reflects our growing confidence that with appropriate withdrawal of the policy stance, the strength in the labor market can be maintained amid moderate growth and inflation falling sustainably to 2 percent," Fed Chairman Jerome Powell said in a press conference after the latest policy meeting.
"The Fed ended the pause with a bang. It's a strong signal that the Fed cut 50 basis points and expects another 50 basis points of cuts this year," said Brian Jacobsen, chief economist at Annex Wealth Management.
Although inflation "remains elevated," the Fed's latest statement emphasized that policymakers chose to cut interest rates to the 4.75%-5.00% range "based on progress on inflation and the balance of risks."
The US central bank "will be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the achievement of the committee's objectives," which address both aspects of its dual mandate of price stability and maximum employment, the statement said.
Reuters noted that this week's Fed policy meeting is the last before US voters go to the polls in the 2024 US presidential election scheduled for November 5. The next Fed policy meeting is scheduled to last two days, starting just one day after the 2024 US presidential election.
After the Fed announced its decision to cut interest rates on September 18 and made forecasts, according to Reuters, investors in contracts related to the Fed's policy interest rate gave a probability of about 64% of a 0.25% cut at the Fed's next meeting in November.
The US Federal Reserve has kept its policy interest rate unchanged at around 5.25% - 5.50% since July 2023 as inflation eases from a 40-year high to near the central bank's 2% target.
The US Federal Reserve uses interest rates as its main tool to control inflation and unemployment. Higher interest rates are used to offset rising prices, while lower rates are designed to stimulate demand and boost employment. The US central bank began raising interest rates sharply in 2022 to respond to rapid inflation amid the COVID-19 pandemic.
