Federal Reserve Cuts Interest Rates by 0.50%

Reporters reported on September 19, 2024, that the Federal Reserve (Fed) announced a 0.50% reduction in the reference interest rate on Wednesday, September 18, 2024. This move is considered the start of a cycle of “intense” interest rate cuts, with the interest rate cut arriving at “half a percentage point” instead of the usual 0.25% interest rate cut.

The Fed’s Monetary Policy Committee (FOMC) voted 11 to 1 to reduce the policy interest rate to 4.75% – 5.0% after keeping interest rates at the highest level in two decades for more than a year. This decision underscores policymakers’ growing concerns about the direction of the US employment market.

Dot Plot Indicates Further Interest Rate Cuts

Although there are consequences for predicting the direction of US interest rates in the long term, the Dot Plot shows a majority of 10 out of 19 Fed officials supporting cutting interest rates by at least 0.5% at the next two meetings in 2024. Additionally, Fed officials indicated a total interest rate cut of 1.00% in 2025 and a rate cut of 0.50% in 2026.

the Dot Plot indicates that the Fed will cut interest rates another 2.00% after today’s rate cut. This move is seen as a significant shift in the Fed’s monetary policy, with the central bank aiming to support maximum employment and push inflation back to target.

US Economic Growth Forecast Revised Downward

In addition to cutting interest rates, the Fed has reduced its forecast for US economic growth in 2024 down to 2%, estimating that US GDP will grow at 2.0% each year from 2024 – 2027. The Fed also raised its unemployment forecast this year “up” from 4.0% to 4.4%.

The Fed revised its forecast for the unemployment rate over the next four years from 2024 to 2027 to 4.4%, 4.4% and 4.3% and 4.2%, respectively. The long-term unemployment rate remains at 4.2%.

Inflation Forecast Revised Downward

The Fed forecasts inflation in 2024-2027 at 2.6%, 2.2%, 2.0% and 2.0%, respectively, “declining” after forecasting in June that it would be at 2.8%, 2.3% and 2.0% in 2024, 2025, and 2026, respectively.

Market Reaction

The US stock market closed slightly negative on Wednesday (September 18) after the Fed announced that it would cut interest rates by 0.50%, ending rumors that had persisted for days about the size of this move. The Dow Jones Index fell 103.08 points (0.25 per cent) to close at 41,503.10 The S&P fell 16.32 points (0.29 per cent) to close at 5,618.26 points.

As for gold prices, they ended positive on Wednesday (18 September 2024) after the Fed announced an aggressive 0.50% interest rate cut to stimulate the US economy. The COMEX gold price for December delivery rose 6.20 dollars to close at 2,598.60 dollars an ounce.