WASHINGTON—As expected, the Federal Reserve reduced interest rates today, cutting the federal funds rate by one-half percentage point to 4-3/4 to 5%.
The Fed cited expanding economic activity and, more important, confidence that inflation is moving toward the FOMC’s 2% objective, behind its decision to reduce rates for the first time since 2020.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee's 2% objective, but remains somewhat elevated,” the Fed stated.
The FOMC said it 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 economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate,” the Fed said.
Looking forward, the Fed stated it will carefully weigh its next move.
“In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2% objective,” the FOMC said.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” the fed continued. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
The Fed noted that all board members, except Michelle Bowman, voted in favor of the 50 BP reduction. Bowman, the Fed stated, preferred a 25 BP cut.
ACU Responds, Urges CUs To Be Competitive
America's Credit Unions Deputy Chief Economist Curt Long noted the FOMC cut rates more aggressively than it had previously forecast.
He said this is "an acknowledgment that inflation is subsiding and risks to the labor market are rising. The Committee’s forecast indicates another 50-basis points of rate cuts this calendar year, followed by a full percentage point reduction in 2025. Regardless of the rate environment, credit unions will respond to their members needs by providing them with better rates and lower fees than the competition."