The Federal Reserve announced Wednesday afternoon the first cut to its interest rate benchmark since 2020. The benchmark was lowered by 50 basis points, more aggressive than the 25 basis point adjustment that some theorized the central bank would enact. In a press conference following the announcement, the president of the Federal Reserve, Jerome Powell, cited a slower than expected job market and lower inflation relative to the past 4 years are the principal causes for the cut:
In light of the progress on inflation and the balance of risks, at today’s meeting the committee decided to lower the target range for the federal funds rate by a half percentage point to 4.75-5 percent. This recalibration of our policy stance will help maintain the strength of the economy and the labor market and will continue to enable further progress on inflation.
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The reduced interest rate will make borrowing more affordable and is intended to stimulate investment, ideally increasing the number and quality of available jobs.
A rate cut this close to an election is unusual, according to an analysis by Reuters. The economic stimulus provided by a rate cut may create a more vigorous economy going into November, buttressing a labor market that has proven weaker than expected, with jobs numbers over the past 12 months being revised down by almost 1 million, far lower than originally estimated.
Markets reacted positively to the news, with the DJA, S&P 500 and NASDAQ all hitting daily highs after the announcement.
