The Federal Reserve (Fed), the US central bank, announced at the end of its meeting on Wednesday 18 September that it would cut its interest rates by half a percentage point. This is its first cut since 2020. The Federal Reserve also plans to further lower its rates by a total of half a point by the end of the year. The central bank also expects inflation to fall faster than expected to 2.1% in 2025 and has revised its unemployment forecast upwards to 4.4% in 2024 and 2025.
Interest rates had been raised to curb rising prices and since July 2023 have been in the range of 5.25% to 5.50%, their highest level in more than twenty years. The aim of this rate cut by the American central bank is to prevent unemployment from rising again while inflation gradually falls into line.
The last meeting before the presidential elections.
The employment situation, which Federal Reserve officials have largely neglected in recent years because the labor market was doing well, is now back in the spotlight. The powerful Federal Reserve’s mission is to ensure price stability and full employment.
US inflation, after peaking following the reopening of the global economy in the wake of the Covid-19 pandemic, reaching as high as 9.5% at an annual rate in June 2022, has since experienced a sharp slowdown, falling to around 2.6% on average in recent months, according to the PCE index favoured by the Federal Reserve. August data will be published on 27 September.
As for the unemployment rate, it fell to 4.2% in August, but job creation is slowing down. This meeting was the last before the presidential election on November 5, which will pit former Republican President Donald Trump against Democratic Vice President Kamala Harris. The next one will take place immediately after the election, on November 6 and 7.
