The US Federal Reserve has cut its interest rate by 50 basis points, bringing the target overnight rate to 4.75%-5.00%. Fed Chair Jerome Powell stated that inflation and employment are now more balanced.
“Inflation is much closer to our target, and we are increasingly confident that it is moving sustainably toward 2 percent,” Powell said during a press briefing following the rate cut. He added that risks related to inflation have diminished, while the risks to employment have increased slightly as the labor market cools.
“We now view the risks to achieving both our employment and inflation goals as balanced, and we are closely monitoring both sides of our dual mandate,” Powell noted.
The Federal Reserve’s dual mandate has been criticized for contributing to previous periods of high inflation, notably during the collapse of the Bretton Woods system and the subsequent Great Inflation of the 1970s.
Despite the rate cut, the Fed will continue its quantitative tightening measures, reducing liquidity by $25 billion per month through Treasury security roll-offs. Agency debt will be reduced by $35 billion per month. The Fed will also provide up to $500 billion through overnight standing facilities, and it will accept excess cash deposits of up to $150 billion at an interest rate of 4.8%.