US Fed Cuts Interest Rates by 0.25%

By Dipo Olowookere

The Federal Open Market Committee (FOMC), the monetary policy making body of the United States Federal Reserve System on Wednesday eventually announced the expected reduction in the benchmark interest rates.

In a statement today, the Federal Reserve said it was slashing its main interest rate by 25 basis points (0.25 percent), citing situations in the global economy for the decision.

This is the first time Fed is cutting the rates since the financial crisis in 2008.

The statement stated that since its last meeting in June, “labor market remains strong and that economic activity has been rising at a moderate rate.”

It further stated that, “Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft,” adding that, “Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

According to the committee, “In light of the implications of global developments for the economic outlook as well as muted inflation pressures, [it] decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent.”

FOMC hinted that it could further adjust the rates in the future as “it contemplates the future path of the target range for the federal funds rate” but stressed it would “continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labour market and inflation near its symmetric 2 percent objective.

Concluding, it said, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.

“This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”