Fed’s decision to cut rates sparks optimism around soft landing in US economy
Date
9/24/2024 9:44:50 AM
(MENAFN) The recent decision by the US Federal Reserve to cut interest rates by 50 basis points, bringing the rate down to a range of 4.75 percent to 5.0 percent, has sparked optimism among some economic experts regarding a "soft landing" for the US economy. Martin Wurm, a director at Moody’s Analytics, highlighted that this aggressive cut, which exceeded the widely anticipated 25 basis points, indicates a significant pivot in the Fed's monetary policy approach.
Wurm noted that this is the first rate cut in over four years, marking a departure from the tightening measures initiated during the pandemic. The last time the Fed implemented a 50-basis-point cut was during the global financial crisis in 2008, underscoring the significance of this move.
Initially, there were concerns among investors that such a large cut might signal the Fed's intention to stave off a looming recession. However, Wurm reassured that the Fed's actions are reflective of a more confident outlook on the economy, as inflation continues to decline and labor market conditions soften. He explained that the Fed's strategy aims to ensure a soft landing—a scenario where the economy slows without falling into recession.
Wurm pointed out that inflation has nearly reached the Fed's target levels, and the labor market has shown signs of softening since summer, which has likely influenced the central bank's decision. He cited Fed Chairman Jerome Powell’s commitment to staying aligned with economic realities as a critical factor in this policy shift. The Fed aims to avoid the risks of overtightening that could lead to an economic downturn, especially given that previous projections kept the policy rate above the estimated neutral rate of 4 percent for an extended period.
Overall, the Fed’s recent actions suggest a proactive approach to managing economic growth while remaining responsive to evolving economic conditions.
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