FED lowers interest rate by 50 points during its September 2024 meeting, bringing it down to 4.75-5.00% range
The U.S. Federal Reserve (Fed) lowered its policy interest rate by 50 basis points during its September 2024 meeting, bringing the rate down to the 4.75-5.00% range. This marks the Fed’s first rate cut since March 2020 and its first reversal after the rate-hike cycle that began in March 2022. With this cut, the Fed has lowered the rate from its highest level in 23 years. Markets responded positively to the decision.
Fed’s Statements and Economic Outlook
The Federal Open Market Committee (FOMC) noted that while inflation remains “somewhat elevated,” it has gained more confidence in its progress. Employment growth has slowed, and the unemployment rate has risen, though it remains low. The Committee emphasized its increased confidence that inflation is moving sustainably toward its 2% target. Risks related to employment and inflation are deemed “roughly balanced.” The Fed also highlighted that economic activity continues to expand at a strong pace, but the labor market is showing signs of cooling.
Rate Cut Cycle and Expectations
Fed officials project an additional 50 basis points of rate cuts by the end of 2024, spread across two remaining meetings. Future adjustments to the federal funds rate will depend on incoming data, economic outlook developments, and risk assessments. The Fed also plans to continue reducing its holdings of Treasury securities and agency mortgage-backed securities.
Economic Projection
The Fed revised its 2024 GDP growth forecast down from 2.1% to 2%. Projections for 2025, 2026, and 2027 remain unchanged at 2%, while the long-term growth estimate stands at 1.8%. Officials also lowered their interest rate forecasts, with the median rate for 2024 revised down from 4.1% to 3.4%, and the 2026 forecast reduced to 2.9%. The long-term rate projection is also set at 2.9%.
Inflation Expectations
The core Personal Consumption Expenditures (PCE) inflation forecast for 2024 was revised down from 2.8% to 2.6%, and the 2025 forecast lowered from 2.3% to 2.2%. Projections for 2026 and 2027 remain at 2%. Overall PCE inflation expectations for 2024 were adjusted down from 2.6% to 2.3%, with the 2025 forecast revised to 2.1%.
Unemployment Expectations
The Fed increased its unemployment rate forecast for 2024 from 4% to 4.4%. Projections for 2025 and 2026 were adjusted to 4.3%, while the long-term unemployment forecast remains at 4.2%.
Outcome and Market Reaction
The markets reacted positively to the Fed’s decision to cut rates, with initial responses marked by optimism. Fed officials focused on balancing inflation and employment goals while acknowledging the economic uncertainties ahead.
