The US Federal Reserve announced its eighth and final monetary policy decision for 2024 after a two-day Federal Open Market Committee (FOMC) meeting. It slashed its benchmark interest rate by (25 bps) or a quarter of a percentage point to 4.25-4.50 percent. US Fed chair Jerome Powell-led rate-setting panel cut the federal funds rate for the third straight meeting after kicking off its policy easing cycle in September for the first time in four years.
US Fed now projects just two quarter-percentage-point rate reductions by the end of 2025, down from their September estimate of four rate cuts.
This is the final planned interest rate decision before outgoing Democratic President Joe Biden makes way for Republican Donald Trump in the White House as the new US President, whose economic proposals include tariff hikes and the mass deportation of millions of undocumented workers.
While US inflation has "eased significantly," the level remains "somewhat elevated" compared to the US Fed's long-term target of two percent, said US Fed Chair Jerome Powell in the post-policy press conference. He added that the Fed was now "significantly closer" to the end of its current easing cycle.
1.US Fed slashes key interest rates by 25 bps in final policy review for 2024: The Fed policymakers voted 11-to-1 to lower the central bank's key lending rate to between 4.25 and 4.50 percent.
“With today’s action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive,” said Powell. “We can, therefore, be more cautious as we consider further adjustments to our policy rate," added Powell.
Powell added that rates were still ‘meaningfully’ restraining economic activity and that the Fed is ‘on track to cut.’ However, he said, officials would have to see more progress on inflation before making additional cuts. The US central bank maintained the key borrowing rate at the 23-year high for 14 consecutive months since July 2023 to combat the worst inflation outbreak in almost 40 years.
2.Fed eyes only two rate cuts in 2025: The Fed reined in the number of cuts expected in 2025, signalling greater caution over how quickly it can continue reducing borrowing costs due to elevated inflation.
3. Fed hikes inflation and GDP forecasts: The policymakers hiked their outlook for headline US inflation next year to 2.5 percent and do not see it returning to two percent before 2027. In positive news for the world's largest economy, they raised their growth outlook this year to 2.5 percent and 2.1 percent in 2025.
The US Federal Reserve jarred US stock markets on Wednesday, pushing most stocks lower and sending US Treasury yields soaring after forecasting fewer interest rate cuts next year. According to Bloomberg, it was the worst loss for the S&P 500 on the day of a rate decision since 2001.
The S&P 500 fell below the 6,000 level, suffering its worst session since August. The tech-heavy Nasdaq 100 dropped 3.6 percent, the most in five months. For the Dow, it was its tenth consecutive daily loss, marking its longest losing streak since 1974 and its biggest daily percentage decline since early August.
(By arrangement with livemint.com)
