Fed cuts rates half a point, hinting victory on inflation

This is the Fed's first cut in two years

Federal Reserve cuts interest rates by 50 basis points
Federal Reserve cuts interest rates by an aggressive 50 points, rather than the typical 25
(Image credit: Michael Nagle / Bloomberg via Getty Images)

What happened

The Federal Reserve yesterday cut its benchmark interest rate a larger-than-usual half-percentage point, to between 4.75% and 5%. It was the Fed's first cut since jacking up interest rates to 23-year highs two years ago to conquer soaring inflation.

Who said what

Cutting rates by an aggressive 50 basis points, rather than the typical 25, is a "clear signal" the central bankers think they are "winning their war against inflation" and are now "turning their attention to protecting the job market," The New York Times said. Fed Chairman Jerome Powell was careful not to declare total victory over inflation, which clocked in at 2.5% in August. "We're not saying, 'mission accomplished,'" he said, but the U.S. economy is "in a good place" and "our decision today is designed to keep it there."

The U.S. now appears to have "low inflation, low unemployment and solid economic growth," a "normal" economy where the only thing that "looked abnormal" was interest rates, Greg Ip said at The Wall Street Journal. In rectifying that "abnormality with its half-point rate cut," the Fed "vastly improve the odds of a soft landing," the rare stabilization of inflation and employment without tipping the economy into recession.

What next?

The Fed signaled it plans to cut rates another half-point by the end of the year and a full point in 2025. The next meeting in Nov. 6-7, "immediately after the presidential election," The Associated Press said.

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Peter Weber, The Week US

Peter has worked as a news and culture writer and editor at The Week since the site's launch in 2008. He covers politics, world affairs, religion and cultural currents. His journalism career began as a copy editor at a financial newswire and has included editorial positions at The New York Times Magazine, Facts on File, and Oregon State University.