Fed Cut Interest Rates 0.50%, Dot Plot Suggests More Cuts in Next Meetings

The FOMC cut interest rates by 50 basis points to 4.75% to 5.00% in the September meeting, marking an aggressive start to the monetary policy easing cycle.

It was also the first reduction in borrowing costs since the start of the pandemic in 2020, during which major central banks announced emergency easing measures. The last time the Fed cut rates by 0.50% was during the 2008 financial crisis.

According to their official statement “The Committee has gained greater confidence that inflation is moving sustainably towards 2% and believes that the risks to achieving the employment and inflation targets are roughly in balance.”

Link to Official FOMC Statement (September 2024)

In addition, their updated economic forecasts pointed to declines in headline inflation from 2.6% to 2.3% and core inflation from 2.8% to 2.6% this year. The commission also raised its estimate for unemployment from 4% in June to 4.4%, underscoring the view that “Job gains have slowed and the unemployment rate has risen but remains low.”

Meanwhile, the dot plot of interest rate projections showed that policy makers are forecasting another 50 basis points in rate cuts for the rest of the year.

Dot Plot Forecasts of FOMC Interest Rate Projections (September 2024)

The dot chart also projects an additional 1.00% rate cut for 2025, plus another 0.50% cut for 2026.

Link to Summary of FOMC Projections

During the press conference, Fed chief Jerome Powell reiterated that they were committed to restoring price stability without sacrificing jobs.

While noting that long-term inflation expectations remain well-anchored and that the economy is generally strong, Powell also warned that there was broad support for a 0.50% rate cut during the September meeting. After all, most policymakers voted in favor of the move, with only one dissenter (Michelle Bowman) calling for less than a 0.25% cut.

Market reactions

US Dollar vs. Major Currencies: 5 min

USD chart overlay against major currencies by TradingView

After nervously trading in tight ranges against its currency peers in the hours before the FOMC decision, the US dollar fell across the board after hearing the Fed’s bigger 0.50% rate cut.

The greenback continued to fall after the official announcement as the FOMC’s Summary of Projections also reflected cuts in inflation and employment forecasts, before edging higher during the press conference.

Fed chief Powell’s remarks appeared to dampen hopes of another mega 0.50% cut in borrowing costs as he assessed that the US economy remained strong thanks to robust consumer spending, even as dot chart forecasts suggested some more moves relaxation before the end of the year.

With that, the US currency managed to bounce back to pre-FOMC levels about an hour after press, with USD/JPY and USD/CHF trading even higher for the rest of the session.