Federal‍ Reserve Cuts Benchmark Interest Rate by 0.5 Percentage Points

The ⁢U.S. Federal Reserve has ⁣cut its benchmark ‍interest rate by⁤ 0.5 percentage points, ⁣marking the first⁤ rate cut in four and a half years since⁣ March 2020, when interest rates were ‌urgently lowered in‌ response to COVID-19.

The decision was made after the⁢ Federal​ Reserve concluded its two-day Federal Open Market Committee (FOMC) meeting. The interest rate ⁣was lowered from 5.25% to 5.5% to 4.75% to 5%, narrowing the interest rate gap ‍with Korea from 2 percentage points to 1.5 percentage points.

According to the Fed, “The U.S. economy ‍continues to expand at a robust pace.” However, the decision to make a big ‌cut was ⁣a preemptive measure in preparation for the employment situation rapidly worsening.

Federal Reserve Chairman Jerome⁣ Powell explained, ​”With inflation declining and the​ labor​ market cooling, the risks of ‌rising inflation have diminished, while the risks of lower employment have increased.”

Despite concerns that ​lowering interest rates by 0.5 percentage points at once would fuel recession fears, Chairman ⁣Powell emphasized that “the labor market remains in good shape” and that‌ the goal is to‌ maintain a strong labor market.

The Fed’s outlook⁢ for the base interest rate, as shown in the dot plot,​ presents an interest⁣ rate level‌ at the end of this year at 4.4%. This suggests that there may be a ‌0.25 percentage ​point cut in both meetings in November⁣ and December, with a⁢ total‍ reduction of⁣ 1​ percentage point next‍ year.

The New ‍York Stock Exchange reacted to the announcement, with⁤ the‍ stock market⁢ falling before the market closed, ⁢and all ⁢three major indexes closing ‍lower. This may be due to concerns ​that the Big Cut decision could ⁢increase fears of ⁢an economic recession.

Limiting further rate cuts to 0.5 ‍points this⁣ year could ‌also‌ be a ⁤factor in the market’s reaction.