Federal Reserve cuts interest rates by half a percentage point, stocks tumble

The Federal Reserve signaled on Wednesday that it will cut interest rates twice more this year after cutting its benchmark federal funds rate by 50 basis points to a range of 4.75%-5.0% at conclusion of its meeting on Wednesday.

Fed officials see the federal funds rate falling to 4.4% in 2024. That suggests the Fed will cut rates by another 0.50% later this year. Outside of Wednesday’s jumbo 50-basis-point cut, the Fed has moved 25 basis points over the past year or so, indicating the central bank expects to cut interest rates two more times in 2024. Previous projections from June they had interest rates reach 5.1. %.

Along with its policy announcement, the Fed released updated economic forecasts in the Summary of Economic Projections (SEP), including the “dots chart,” which shows policymakers’ expectations of where interest rates might be headed in the future.

In all, 17 officials predicted more easing this year, with only two seeing rates holding steady for the rest of the year. Seven officials forecast just one more cut, while nine officials see two additional cuts. One official predicts three cuts by the end of the year.

Next year, most officials see the federal funds rate reaching 3.4 percent, down from the 4.1 percent anticipated in the previous forecast. That suggests four more rate cuts to come in 2025. Officials see two more cuts from there in 2026, which would bring the federal funds rate down to 2.9 percent.

The updated projections suggest the Federal Reserve has begun its long-awaited easing cycle as the central bank tries to maneuver the economy into a soft landing where price increases stabilize while employment remains robust.

So far this year, inflation has moderated but remains above the Federal Reserve’s 2 percent target on an annual basis, pressured by warmer-than-expected monthly “core” price readings in recent months.

The labor market was also a focus for the Fed after the unemployment rate unexpectedly rose to 4.3% in July. It has since fallen to 4.2% as FOMC members debate whether or not the recent softness in the labor market indicates the market is gradually cooling or weakening rapidly.

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