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The US Federal Reserve (Fed) has decided to cut interest rates by 0.5 percentage points, starting a cycle of easing monetary policy, amid steadily cooling inflation and growing concerns about the health of the labor market.
At the end of a two-day policy meeting, on September 18 (local time), the Fed decided to lower interest rates for the first time since the early days of the Covid-19 pandemic.
This decision was made by the Federal Open Market Committee (FOMC) in the context of both the labor market and inflation cooling down with a cut considered "strong" - 0.5% - bringing the standard interest rate to fluctuate in the range of 4.75% - 5%, signaling the path of easing monetary policy is starting.
Aside from emergency cuts during Covid-19, the last time the agency cut by a similar amount was in 2008 during the global financial crisis.
In addition to the cut decision, through the dot plot, the FOMC also signaled that it would cut another 0.5 percentage points later this year. For 2025, Fed officials expect a total cut of 1% and 0.5% in 2026.
Overall, the chart shows benchmark interest rates falling about 2 percentage points after the Fed's latest decision.
Accordingly, policymakers expect the benchmark interest rate to end 2025 at 3.25% - 3.5%. By the end of 2026, interest rates may be slightly lower than 3%.
According to experts, the Fed's sharp interest rate cut shows the agency's growing concern about the US labor market.
Lower interest rates will reduce borrowing costs, supporting businesses and households, while average wage growth is now outpacing price increases as inflation has cooled significantly.
US inflation has fallen to 2.5% in August 2024 from a peak of 9.1% in mid-2022, while the unemployment rate has recently risen to 4.2%.
Responding to the Fed's strong decision, key US stock indexes all increased in the trading session on September 18.
The Dow Jones Industrial Average rose 0.36% to 41,755.91 points, while the S&P 500 Composite Index rose 0.47% to 5,661.29 points. The Nasdaq Composite technology index rose 0.77% to 17,764.34 points.
Additionally, the dollar index, which measures the greenback's value against a basket of other major currencies, fell 0.54%.
