The Federal Reserve announced on Wednesday that it is lowering interest rates for the third time in a row. This time, the Fed reduced its key rate slightly, bringing it to a new range. Previous reductions included a small cut in November and a larger one in September. These changes have brought rates down from their highest level in over 20 years.
The Federal Open Market Committee (FOMC), the group responsible for setting these policies, explained that while inflation has decreased, it is still higher than their goal. They also noted that the job market has weakened slightly, though unemployment remains low. However, one member of the FOMC, Cleveland Fed President Beth Hammack, disagreed with the decision, preferring to keep rates higher.
The Fed also shared its outlook for the future. It predicts a few more rate cuts over the next few years, though fewer than previously expected. Inflation, which is measured using a key index, is expected to gradually decline to the Fed's target over the same period.
Fed Chair Jerome Powell explained why the Fed decided on the latest rate cut. He said they are trying to balance risks, such as acting too quickly and harming jobs or moving too slowly and allowing inflation to stay high. Powell mentioned that the job market is cooling, but not enough to reach their inflation goal. He also noted that the progress in reducing inflation has slowed, partly due to rising housing costs.
At a press conference, Powell said the Fed is nearing a point where its policies neither speed up nor slow down the economy. For now, they plan to monitor inflation and the job market closely before making further changes. Powell reassured Americans that while prices remain high, inflation has eased significantly since its peak two years ago.
The stock market did not respond well to the news. Major indexes dropped, with investors concerned about the challenges the Fed might face in making more rate cuts if inflation rises. Some experts believe the Fed's actions show confidence in the economy, but there is still uncertainty about how future decisions will impact growth.
Overall, the Fed's goal is to strengthen the economy while bringing inflation down to its target. However, it will need to move carefully as it continues to adjust policies.
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