Fed cuts interest rates by 0.5% on September 18

On September 18, the Federal Reserve made a significant decision to cut interest rates by 0.5%, a move that exceeded market expectations which were divided between a 0.25% and 0.5% cut. This decision is seen as the beginning of a trend towards further monetary policy accommodation, with forecasts indicating additional rate cuts through 2026. The Federal Open Market Committee (FOMC) released updated forecasts alongside the rate cut, revealing expectations for lower interest rates in the coming years, with the median forecast for the end of 2024 at 4.4%, down from previous estimates. The FOMC's forecasts also included projections for GDP growth, inflation, and unemployment rates. While real GDP growth remains relatively positive, inflation is expected to improve but stay above the Fed's 2% target in both 2024 and 2025. The unemployment rate forecast for Q4 2024 was raised to 4.4%, indicating a cautious outlook on the labor market. Market reactions to the rate cut were mixed, with the larger-than-expected cut likely to support equity and bond prices while being bearish for the U.S. dollar. Investors and economists had anticipated this move, and the FOMC's forecasts suggest a proactive approach to managing economic conditions. Overall, the Fed's decision reflects its dual mandate to promote full employment and maintain price stability, signaling a commitment to adjusting monetary policy in response to evolving economic indicators.