US Fed cuts interest rate for first time since COVID-19 before election

The US Fed rate cut has comes down from 5.35 per cent to between 4.75 per cent and 5 per cent.

The US Federal Reserve cut its main interest rate by half a percentage point on Wednesday, September 18.

This is the first time it has done so since the start of the Covid-19 pandemic, making borrowing cheaper just before the November presidential election.

The US Fed rate cut has comes down from 5.35 per cent to between 4.75 per cent and 5 per cent.

“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the Federal Reserve said in a statement.

Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 per cent objective but remains somewhat elevated.

“In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 per cent.”

In the run-up to the Fed’s two-day meeting, it was expected to announce a hike but there was speculation if it will opt for a more modest 0.25 percentage or 0.5 percentage point. It chose the latter, signaling urgency in dealing with declining job numbers now that inflation had been reined in.

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The US fed rate cut will reduce the costs of house mortgage, auto loans and other credit-based business, and encourage businesses to expand and step up production, hire more people.

Fed Chair Jerome Powell will explain more in a news conference shortly.

The last rate hike was in 2021, which the Fed had announced to fuel economic activity in the aftermath of the crippling aftereffects of the Covid-19 pandemic.

As the US economy emerged from the Covid-19 lockdown, prices started climbing in 2021, and hit a 40-year high of 9.1 per cent in June 2022, forcing the Fed to fight back by raising interest rates banks charge each other, to reduce the volume of money in circulation and force inflation back to the target of 2 per cent. Inflation kept rising stubbornly as the Fed kept hiking the interest rate.

The Fed raised interest rates 11 times over 2022 and 2023, taking it from 0.08 per cent in 2021 to the current 5.35 per cent, which is the highest in 20 years.

(with inputs from IANS)