Fed’s decision for 50 basis points rate cut signals that inflation is no longer the central concern

The US Federal Reserve’s decision to reduce interest rates by 50 basis points in its September policy meeting reflects its growing confidence in the economic recovery and the continued easing of inflation.
Fed Chair Jerome Powell emphasized that the cut was a proactive move to maintain strong labor market conditions while keeping inflation in check.
The Fed’s decision marks a significant shift in monetary policy, aiming to recalibrate after a sharp drop in inflation.
By reducing the benchmark rate to 4.75%-5.00%, the Fed signals that inflation is no longer the central concern, as it has dropped close to the 2% target.
Instead, the focus is on ensuring that unemployment remains low, with Powell indicating that policymakers are being cautious to avoid unnecessary job losses in their pursuit of inflation goals.
In terms of long-term projections, the Fed expects further rate cuts in the coming years, with a potential full percentage point drop by the end of 2024 and smaller reductions thereafter.
This cautious yet forward-looking approach aims to balance economic stability while reacting to potential shifts in the labor market.
Politically, the rate cut has garnered mixed responses, with Democratic presidential candidate Kamala Harris welcoming the move as relief for struggling families, while Republican nominee Donald Trump expressed concerns that the size of the cut might indicate underlying economic weakness.
Powell, however, maintained that the economy is still strong, and the rate cut is a preemptive measure to stave off potential labor market softening.
The muted response from both candidates suggests that the rate cut, while significant, is not yet a major factor in the upcoming presidential election discourse.