The US Federal Reserve has announced a larger-than-expected cut in interest rates, marking its first reduction in more than four years. This decision signals a significant shift in monetary policy for the world’s largest economy.
The central bank lowered the target range for its key lending rate by 0.5 percentage points, bringing it down to 4.75% – 5%. The move aims to provide relief for borrowers across the nation, who have been grappling with the highest interest rates seen in over two decades.
Officials at the Fed expressed growing concern over rising unemployment rates, citing this as a critical factor in their decision to adjust the rate. Lower interest rates are expected to ease financial burdens for businesses and households alike.
“The time had come for a policy adjustment,” said Fed Chairman Jerome Powell, referencing previous comments he made last month that set the stage for the decision. Powell further indicated that additional rate cuts could follow later this year, as inflation appears to be heading back towards the bank’s 2% target.
Economist Randall Kroszner, a professor at the University of Chicago’s Booth School of Business and a former Fed governor, commented on the significance of the rate cut. “One quarter of a percentage point one way or another – that’s not going to break the US economy,” he said. “What matters is where the rates are headed for the rest of the year and in the longer run.”
The Fed’s new projections show its lending rate could drop to about 4.4% by the end of the year and further to 3.4% by 2025—figures significantly lower than those anticipated just a few months ago.
For entrepreneurs like Jennifer Heasley, owner of Sweet Mama’s Mambo Sauce, the rate cut is a welcome relief. Heasley, who has relied on credit cards to expand her business, shared her struggles with high interest rates. “My interest rates have gone up, so my monthly payments have increased tremendously,” she said, noting that one card is now charging 21%.
“For me, it is a big deal for them to start to come down,” she added, highlighting how the cut could help ease the cost of doing business.
This decision follows similar moves by central banks in Europe, the UK, and Canada, all aiming to stabilize economic conditions amidst global uncertainty. The Federal Reserve’s historic rate cut marks the beginning of a potential new era of lower borrowing costs in the US.
