Fed cuts rates by 50 bps, sees similar reduction by year-end

The US Federal Reserve headquarters

The US Federal Reserve slashed its key lending rate by 50 basis points (bps) today, Sept. 18 in its first reduction since 2020, ending the monetary tightening that started in March 2022.

The Federal Open Market Committee (FOMC) agreed to slash the federal funds rate range to between 4.75% and 5.00%, in line with market expectations that had anticipated a 50-bps cut.

The Fed statement also revealed that 11 members, including Chair Jerome Powell, supported the decision to cut the rate by 50 basis points, while one member opposed, advocating for a lower reduction of just 25 bps.

In addition, the FOMC indicated in a report accompanying the statement that it expects an additional 50 basis point reduction by the end of the year, an estimate that is also close to market expectations.

The Fed earlier maintained interest rates at 5.25% to 5.50%—the highest level in over 23 years—over the last eight meetings, which were preceded by 11 rate hikes since March 2022.

Aside from the emergency rate cuts at the onset of the COVID-19 pandemic, the last time the FOMC cut rates by half a percentage point was in 2008 during the global financial crisis.

Officials’ expectations also pointed to another full percentage point in cuts by the end of 2025 and a half-point in 2026.

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that 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,” Fed said in a statement.