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.