Federal Reserve Cuts Interest Rates by 0.5 Percentage Points

The Federal Reserve System, the US central bank, has lowered its benchmark interest rate by 0.5 percentage points, marking the first interest rate cut since the COVID-19 pandemic.

This move is seen as a preventive measure to ensure a soft landing before the employment situation worsens. The decision was made after the Federal Reserve ended its ‘tightening stance’ after four and a half years, announcing that ‘prices are almost under control and we are now trying to control employment.’

Why the Interest Rate Cut?

The global economy had frozen due to the COVID-19 pandemic, prompting the Federal Reserve to lower interest rates and the US government to release money on a large scale. However, this led to a rise in prices to the 9% range.

To control these prices, the Federal Reserve raised the interest rate from 0% to 5.5% in July last year, and the period of high interest rates has continued until today.

Expert Insights

Experts were divided on the size of the first interest rate cut, but the Federal Reserve chose a 0.5% point cut, a ‘big cut’. According to Chairman Jerome Powell, “The inflation rate continues to move towards 2%.”

Powell also explained that this is a pre-emptive response to ensure a soft landing before the employment situation deteriorates rapidly. “The time to support the labor market is not when layoffs start, but when the labor market is strong. That’s where we are. We’ve actually started a cycle of rate cuts, and we’ll see.”

Future Interest Rate Cuts

It is expected that the rate will fall further by 0.25% in each of the other two meetings this year, and by 1% next year. However, there are many variables as to how the market will react and whether this decision will drive prices.

Chairman Powell also made it clear that he could adjust the pace depending on market conditions. The pace of future interest rate cuts is still unclear.

Reactions from the Political World

The decision, made just seven weeks before the presidential election, received mixed reactions from the political world. The Democratic Party immediately welcomed it, but the Republican Party criticized it as a political decision, saying, ‘Why now?’

This report was brought to you by Lim Kyung-ah from MBC News in New York.