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Informist, Friday, Nov. 8, 2024

 

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--US FOMC cuts federal funds rate target range by 25 bps to 4.50-4.75% 
--US FOMC: Recent data suggests economic activity expanded at a solid pace 
--US FOMC: Risks to employment, inflation goals roughly in balance 
--US FOMC: Labour mkt conditions generally eased since earlier in the year 
--US FOMC: Unemployment rate has moved up but remains low 
--US FOMC: Inflation has moved toward 2% objective but remains elevated
 

 

NEW DELHI – The US Federal Open Market Committee unanimously voted to lower the federal funds target range by 25 basis points to 4.50-4.75%. This is the second consecutive meeting the FOMC has lowered interest rates.

 

The committee had cut the federal funds target range by 50 bps to 4.75-5.00% at its September meeting, after keeping it at an over two-decade high of 5.25-5.50% for 14 months. The FOMC had raised the federal funds target range by 525 bps between March 2022 and July 2023. During that period, CPI inflation had hit multi-decade highs, while the US economy was growing at a robust pace.

 

"Recent indicators suggest that economic activity has continued to expand at a solid pace," the Federal Reserve said in its FOMC statement Thursday. "Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low."

 

The FOMC statement said that inflation has made progress toward the committee's 2% objective but remains "somewhat elevated". 

 

Inflation in the world's largest economy has been gradually moving towards Fed's target of 2%. US inflation rose 2.4% on year in September against 2.5% in August. Meanwhile, job growth in the US slowed sharply in October. Non-farm payrolls increased by 12,000 jobs after a downwardly revised 223,000 in September. The unemployment rate held steady at 4.1% in October.

 

The decision to lower interest rates was along expected lines. Ahead of the meeting this month, Fed funds futures had priced in a 99% chance of a 25 bps rate cut, according to the CME FedWatch tool.

 

The committee said 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 statement said.

Going ahead, the FOMC will "carefully assess" incoming data, the evolving outlook, and the balance of risks in considering additional adjustments to the target range for the federal funds rate, the 12-member panel said in the statement. It will also continue to monitor the implications of incoming information for the economic outlook, the committee said.

 

The Summary of Economic Projections, released at the September meeting, had showed the median Federal Reserve official expects another 50 bps of rate cuts in 2024. There is one more FOMC meeting left in the year in December, suggesting another rate cut could be a possibility in 2024.

 

At the end of 2025, the median projection showed the Fed funds target range at 3.25-3.50%, 75 bps lower than their projection in June. This implies another 125 bps of rate cuts.

 

The committee said it would continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities. The Fed had begun trimming its balance sheet by $60 billion every month in Treasury and mortgage-backed securities starting Jun 1. This was after a monthly drawdown of $95 billion for the previous two years.  End

 

US$1 = INR 84.37

 

Reported by Shubham Rana and Pratiksha

Edited by Ashish Shirke

 

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