The US Federal Reserve, in continuing the rate cut cycle, cut the interest rate by 25 basis points, according to an official statement following the key FOMC meeting. The US Federal Reserve has lowered its target range for the federal funds bringing it down to 4.25 per cent- 4.5 per cent.
It said, “In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/4 to 4-1/2 per cent”. The Fed noted that the move, aimed at supporting economic growth and achieving the central bank’s long-term goals of maximum employment and a 2 per cent inflation rate, was announced after the Federal Open Market Committee (FOMC) meeting. Despite the anticipated rate cut, the announcement did not bring cheer to the US stock markets. Instead, major indices tumbled, reflecting investor concerns about the economic outlook. The S&P 500 plunged by 2.95 per cent, losing 178 points to close at 5,872.
Meanwhile, the tech-heavy Nasdaq dropped by 3.28 per cent, shedding 658 points to settle at 19,450. In its statement, the Federal Reserve highlighted that it would carefully evaluate incoming economic data, risks, and future developments before making additional adjustments to the interest rates. The Committee also reaffirmed its commitment to continue reducing its holdings of Treasury securities, agency debt, and mortgage-backed securities. It said, “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. The Committee strongly supports maximum employment and returns inflation to its 2 percent objective”.
The sharp decline in stock prices reflects fears of a prolonged economic slowdown or uncertainty about the Fed’s future actions. The rate cut, although intended to stimulate economic activity, appears to have raised concerns about the effectiveness of monetary policy in tackling current challenges.
