The US Federal Reserve (Fed) has announced a 0.50% interest rate cut for the first time in four years. This decision comes as analysts were expecting a more modest 0.25% cut and raises concerns about current economic conditions.
Unexpected Rate Cut
Prior to the interest rate decision announcement, CME FedWatch surveys showed a 100% probability of monetary easing, with analysts predicting a 0.25% cut. However, the Fed decided on a surprising 0.50% cut. A leading analyst noted similarities between current economic conditions and those of 2007, including unemployment rates, inflation, and housing market activity.
Stock Market Reaction
The stock market reaction was mixed. Following the announcement, the Dow Jones and S&P 500 indices briefly reached record highs, but profit-taking soon followed. Ultimately, the indices ended the day lower. Historical analysis suggests that significant rate cuts often lead to stock market declines when accompanied by signs of a weak economy.
Economic Growth Prospects
According to Reuters, central bankers plan to reduce interest rates to a range of 4.25%-4.50% by the end of 2024, with two 0.25% cuts expected in November and December. By the end of 2025, the rate is projected to drop to 3.4%. The Fed's decision raises questions, especially in light of the upcoming elections and the future economic growth prospects.
The Fed's unexpected decision to cut the interest rate by 0.50% has sparked widespread discussions and concerns about future economic conditions. The reaction of stock markets and further development of the economic situation will determine whether the US can avoid a recession in the coming years.
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