The U.S. central bank on Wednesday kicked off an anticipated series of interest rate cuts with a larger-than-usual half-percentage-point reduction that Federal Reserve Chair Jerome Powell said was meant to show policymakers’ commitment to sustaining a low unemployment rate now that inflation has eased.
“We made a good strong start and I am very pleased that we did,” Powell said at a press conference after the Fed, noting its increased confidence that the country’s bout with high inflation was over, reduced its benchmark policy rate by 50 basis points to the 4.75%-5.00% range. “The logic of this both from an economic standpoint and from a risk management standpoint was clear.”
So clear in fact that Powell, who has championed policy-by-consensus since becoming Fed chief in 2018, saw the first dissent from a Fed governor since 2005 when Michelle Bowman voted against the decision in favor of a smaller quarter-percentage-point rate cut – evidence some analysts said of his motivation to start the Fed’s easing cycle in a compelling way.
Powell called the move a “recalibration” to account for the sharp decline in inflation since last year; he noted that the economy remained strong but the central bank wanted to stay ahead of and stave off any weakening in the job market; analysts saw a nod to what has been an overarching aim of his to avoid unnecessarily trading higher unemployment to reach the central bank’s 2% inflation target.
Despite coming only about seven weeks before the U.S. presidential election, the Fed’s policy decision elicited a fairly muted reaction, initially at least, from the presidential candidates.
Vice President Kamala Harris, the Democratic presidential candidate, called the rate cut “welcome news” for Americans.
“I know prices are still too high for many middle-class and working families,” she said in a statement.
Republican nominee Donald Trump, who as president first appointed Powell to lead the Fed, said the size of the cut suggested the economy may be in trouble.