In the early hours of September 19, 2024, Beijing time, the Federal Reserve announced its latest monetary policy decision, reducing the benchmark interest rate by 50 basis points and establishing a target range between 4.75% and 5%. This marks the Federal Reserve's first interest rate cut since March 2020.

Significant Announcement by the Federal Reserve

On September 18, during a two-day monetary policy meeting, the Federal Open Market Committee (FOMC) decided to lower the federal funds rate target range to 4.75% to 5%, resulting in a 50 basis point reduction. Analysts suggest that, historically, the Federal Reserve rarely initiates a new rate-cutting cycle with such a substantial decrease unless faced with a significant economic crisis. Therefore, the Fed's decision to lower rates more aggressively than anticipated may aim to achieve an economic "soft landing" and mitigate the risks associated with a slowdown in economic activity.

Powell Signals Important Insights

Federal Reserve Chair Jerome Powell stated that the forecasts do not indicate that the Fed is acting precipitously. He noted that the Federal Reserve has the flexibility to accelerate, decelerate, or pause the rate-cutting process as deemed appropriate. Specifically, if economic conditions remain robust, a more gradual pace of rate cuts may be warranted; conversely, should the labor market deteriorate, the Fed is prepared to respond accordingly. Furthermore, Powell emphasized that the current forecast should not be misinterpreted as a predetermined plan, and policy adjustments will be made as necessary. He articulated that the 50 basis point reduction aims to sustain the strength of both the economy and the labor market.

Regarding economic conditions, Powell highlighted that economic activity continues to expand at a "steady pace," with growth in the latter half of the year expected to mirror that of the first half. He asserted, "The U.S. economy is in good shape, and our decision today is intended to maintain this condition."

Additionally, Powell cautioned against interpreting the 50 basis point cut as indicative of a new trend, urging that conclusions should not be drawn based solely on this singular reduction. He noted that the decision received broad support among Fed officials, despite a dissenting vote from Governor Bowman, who advocated for a 25 basis point cut. Moreover, Powell emphasized that there are currently no signs of an impending recession in the U.S. economy.

Revisions to GDP Growth and Inflation Expectations, Along with Adjusted Unemployment Projections

The FOMC statement indicated that inflation has made further progress toward the 2% target but remains at a "slightly elevated" level, with risks related to employment and inflation goals balanced. Consequently, the decision was passed with a vote of 11-1, with Governor Bowman opposing the rate cut in favor of a 25 basis point reduction.

The Federal Reserve now projects U.S. GDP growth for 2024 at 2.0%, a decrease from the previous expectation of 2.1% in June. Furthermore, projections for GDP growth in 2025 and 2026 remain at 2.0%, and the growth rate for 2027 is also anticipated to be 2.0%. The long-term GDP growth forecast remains unchanged at 1.8%.

Unemployment projections have been revised upward, with expectations for 2024 at 4.4%, an increase from the previous estimate of 4.0% in June. Similarly, projections for unemployment in 2025 and 2026 are set at 4.4% and 4.3%, respectively. Finally, the long-term unemployment rate forecast remains steady at 4.2%, consistent with estimates from June.