Fed cuts rates for first time in four years

The Federal Reserve has cut interest rates by half a percentage point and signalled further reductions, pushing US equity markets to fresh highs.
The federal open market committee’s decision to lower the cost of borrowing to a range of 4.75 per cent to 5 per cent is the first reduction for more than four years.
In a statement it said it “has gained greater confidence that inflation is moving sustainably toward 2 per cent, and judges that the risks to achieving its employment and inflation goals are roughly in balance”. Michelle Bowman became the first Fed policymaker to dissent from a rate decision since 2005.
Policymakers see the benchmark rate of the Fed, whose board is chaired by Jerome Powell, falling by another half of a percentage point by the end of this year, another full percentage point in 2025, and by a final half of a percentage point in 2026 to end in a 2.75 per cent to 3 per cent range.
“The Fed ended the pause with a bang,” Brian Jacobsen, chief economist at Annex Wealth Management, said. “It’s a strong signal that they cut by 50 basis points and expect another 50 basis points of cuts this year. This was controversial.”
On Wall Street a mixed start to the trading day indices picked up after the Fed decision, touching new highs. By mid-afternoon in New York the Dow Jones industrial average was on track for its 28th record close of the year so far with a gain of 119.22 points, or 0.2 per cent, to 41,725.40. S&P 500 was just shy of its record high with a gain of 13.27 points, or 0.2 per cent, at 5,647.85 The technology-biased Nasdaq was up 0.1 per cent.
George Lagarias, chief economist at Forvis Mazars, the audit and consultancy group, said: “The Fed took a bold step, considering that services inflation is still much higher than average and that the US economy depends on China to continue deflating goods.
“The US central bank is now committed, in the eyes of markets, to reduce rates quickly. A paced approach would have allowed it to manoeuvre in case prices didn’t stabilise at the desirable pace. A double cut necessitates further aggressive moves, and leaves little room to manoeuvre in case prices rebound.”