Federal Reserve lowers interest rates by 0.5%

The Federal Reserve (Fed) announced Wednesday a decision that has been anticipated since 2020: It will lower interest rates by 0.5% (i.e., leaving it in a range between 4.75-5%). The reduction is the first rate cut in more than four years. In an official statement, the Fed stated:

"The Committee decided to reduce the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5%. In considering further adjustments to the target range for the federal funds rate, the Committee will carefully assess the incoming data, the evolving outlook, and the balance of risks."

The domestic economic outlook remains uncertain

After 11 consecutive interest rate hikes (which began in March 2022), the Fed indicated that they intend to redirect their attention to the lack of stability in the labor market and, in a statement, the entity mentioned that it now has "greater confidence" that inflation is approaching its 2% target, although they warn that economic conditions remain uncertain and that they will continue to monitor risks:

"The Committee has become more confident that inflation is moving sustainably toward 2%, and believes that the risks to achieving its employment and inflation objectives are roughly balanced (...) The economic outlook is uncertain, and the Committee is watching for risks."

In the latest economic projections, the Fed expects more interest rate cuts before the end of the year, something that contrasts with its June forecast, which anticipated only one rate cut in 2024. As for unemployment, officials expect it to rise to 4.4% for this year, up from 4.2% in August.

The statement highlights that the national economic outlook remains uncertain. It is expected that, in the coming months, officials will continue to make strategic and critical decisions for the population.