Sunita Somvanshi
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The Federal Reserve slashed interest rates by half a percentage point on Wednesday, marking its first rate reduction since the early days of the COVID-19 pandemic, as part of a shift in focus from controlling inflation to sustaining employment levels.
Fed Chair Jerome Powell spoke to reporters, citing the risks the Federal Reserve sees in achieving its employment and inflation goals as being roughly balanced. He further highlighted the importance of carefully monitoring both aspects of the dual mandate.
The federal funds rate now sits at 4.75% to 5%, down from the previous range of 5.25% to 5.5%. This reduction aims to ease borrowing costs and stimulate economic activity.
The unemployment rate climbed to 4.2% in August, up from 3.8% a year earlier, raising concerns about a cooling labor market and the possibility of job losses.
This adjustment reflects growing worries about job losses outweighing inflation concerns, prompting the Fed to reconsider its policy stance in favor of promoting employment.
The Fed's shift could influence monetary policy decisions worldwide, potentially causing central banks in Europe and Asia to consider rate cuts as well, with broad implications for global financial stability.
Sean Grzebin, head of consumer originations at Chase Home Lending, reported increased home-buying activity fueled by optimism around falling mortgage rates, suggesting renewed interest in the housing market.
Economists will be closely monitoring indicators such as GDP growth, inflation rates, and labor market statistics to assess the effectiveness of the rate cut and its long-term implications for economic growth
Powell emphasized the Fed's political independence, stating that the Federal Reserve's decisions are based solely on its dual mandate of maximum employment and price stability, and are not influenced by any political agenda or figure.
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