Federal Reserve decreases interest rates.
The US Federal Reserve (Fed) has reduced interest rates by 0.25 percentage points, marking the first reduction this year. The decision was made in a closely-watched meeting, with eleven out of twelve voting governors supporting the move.
The new interest rate range now stands at 4.00 to 4.25 percent. This cut comes as the Fed described economic activity as weakened, and inflation has risen and remains somewhat elevated. Uncertainty about the economic outlook was again deemed high by the Fed.
One of the most notable votes came from the newly appointed Fed Governor, Stephen Miran, who advocated for a twice as large interest rate cut. While all other members voted for a 0.25 percentage point cut, Miran's stance marked a significant departure.
The dot plot, a visual representation of Fed officials' interest rate projections, suggests two more rate cuts this year, with significant differences among the officials. One Fed official, possibly Miran, hinted at five more cuts this year. However, another Fed official does not favour any cuts.
The inflation forecast for 2025 remains unchanged at 3.0 percent, while the 2026 inflation forecast is now 2.8 percent, up from the previous 2.6 percent. Job growth has slowed, according to the Fed.
In response to the rate cut, major indices on Wall Street initially gained but quickly gave up those gains. The Fed remains committed to both a stable labor market and price stability. Long-term, rate cuts are generally positive for stocks.
As the Fed meeting concluded, attention now turns to Fed Chair Jerome Powell's further remarks. High volatility is expected to continue into the evening, as investors digest the implications of the rate cut and the differing opinions among Fed officials. We will closely monitor these developments.
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