FOMC Slashes Rates by 50 Basis Points

The Federal Open Market Committee slashed the Federal Funds rate by a half percentage-point to a new range of 4.75% to 5.00%. The first interest rate cut since March 2020 represented a reversal in strategy for the central bank, which had held its key interest rate at a 23-year high for 14 months prior to Wednesday.

With inflation approaching the Fed’s target of 2%, policymakers are pivoting away from fighting inflation to the job market. However, the central bank anticipates only a half point in additional rate cuts for the rest of the year, indicating that the committee does not believe the job market is in imminent danger of collapsing.

“The (Fed) has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed said in a statement. “The economic outlook is uncertain, and the Fed is attentive to the risks of both sides of its dual mandate.”

In its new summary of economic projections, the Fed’s dot-plots fell to meet market expectations, with the median dot-plot for 2024 reduced to 4.37% from 5.125%, the 2025 cut to 3.375% from 4.125%, and 2026 from to 2.875% from 3.125%.

Not all policymakers agreed with the decision. Governor Michelle Bowman voted against the other 11 members of the committee, preferring a lower 25 basis point cut, breaking the FOMC’s streak of unanimous votes for the first time since June 2022.

Prior to the decision, interest-rate futures indicated that there was a greater than 50% possibility of a half-point cut rather than the typical quarter-point change. Overall rate-cut estimates have risen since the last FOMC meeting, with 60 basis points of cuts added by the end of 2025, with a significant emphasis on 2024.