The US Federal Reserve has cut interest rates by 50 basis points, signaling the central bank’s confidence that its war against inflation is coming to an end. How far and how fast the Fed cuts rates moving forward remains to be seen.
Fed Chair Jerome Powell told lawmakers earlier this year that the era of near-zero interest rates is likely over, the central bank projected in June that the median interest rate would drop to 4.1% in 2025 and 3.1%in 2026.
The Fed further lowered its median rate forecast Wednesday to 3.4% next year and 2.9% in 2026, as well as in the long run, according to new economic projections.
“This would only be the first cut of a rate-cutting cycle. The size and frequency of future cuts will give us a better understanding of whether the Fed believes they are behind, or ahead of, ‘the curve,’” said Jonathan Ernest, an economics professor at Case Western Reserve University.
The jobless rate ticked up to 4.3% in July and clocked at 4.2% last month. That’s relatively low by historical standards but still a sign of labor market “cooling” the Fed had been watching for as it waited to cut rates.
While some economists believe the Fed could have started cutting rates in July, the next few months are critical as the central bank attempts to bring the economy in for a “soft landing,” maintaining its dual mandate of low inflation and maximum employment as it brings down rates.
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