The US Federal Reserve has lowered its policy interest rate by 25 basis points, continuing a shift towards monetary easing aimed at supporting economic stability.
The latest decision by the Federal Open Market Committee (FOMC) lowers the federal funds rate target to a range of 4.5 per cent to 4.75 per cent.
This move, according to Fed Chair Jerome Powell, reflects the Fed's commitment to fostering sustainable economic growth and moving inflation towards the Fed's long-term 2 per cent goal.
FOMC decided to lower the interest rate by 25 BPS
Powell said, "Today the FOMC decided to take another step in reducing the degree of policy restraint by lowering our policy interest rate by a quarter percentage point." He added, "We continue to be confident that with an appropriate recalibration of our policy stance, strength in the economy and labour market can be maintained with inflation moving sustainably down to 2 per cent.
We also decided to continue to reduce our security solutions." Recent indicators show solid economic growth, with a steady, though slightly moderated, expansion in labour market conditions.
Unemployment rate rising modestly
Although the unemployment rate has risen modestly, it remains relatively low, signalling a generally healthy job market. Inflation, while improved, has not yet fully reached the Fed's target, indicating that the central bank is navigating a delicate balance as it adjusts its monetary policy.
The Committee emphasised that it remains focused on achieving maximum employment and stable, low inflation in the long run.
The Fed acknowledged uncertainties in the economic outlook and potential risks to both its employment and inflation goals. The FOMC highlighted that it would closely monitor incoming data, particularly in relation to labour markets, inflationary pressures, and international developments.
FOMC will consider additional adjustments
Looking forward, the FOMC signalled it would carefully consider additional adjustments to the federal funds rate based on evolving economic conditions and potential risks to its dual mandate.
The Committee reaffirmed its dedication to reducing inflation back to its 2 per cent target and supporting maximum employment and reiterated that it is prepared to modify policy if necessary to keep progress on track.
In line with this goal, the Fed will continue to reduce its holdings of Treasury securities, agency debt, and mortgage-backed securities as part of its plan to gradually unwind its balance sheet.
FOMC's decisions will further weigh macro data
As the US economic outlook remains complex, Powell emphasised the Fed's attentiveness to a wide array of factors. The Committee's decisions will weigh data on employment and inflation while assessing global financial and economic conditions.
The Fed's latest rate cut reinforces its flexible and cautious approach as it aims to foster a resilient U.S. economy amidst a changing economic landscape.
