The Federal Reserve has cut interest rates by 50 basis points, marking a significant shift in its monetary policy amid concerns over the labour market and global economic outlook. The move lowers the benchmark policy rate to a range of 4.75%-5.00%, the first reduction of its kind in over four years.
Fed Chair Jerome Powell expressed confidence in the decision, saying, “We made a good strong start and I am very pleased that we did.” He highlighted the central bank’s increased optimism that the period of high inflation has ended. The Fed’s rate-setting committee stated that the cut is aimed at supporting sustainable movement toward the 2% inflation target, with risks to employment and inflation now seen as balanced.
The Fed anticipates further rate reductions, projecting another 50 basis point cut by the end of the year, with an additional 100 basis points in 2025 and a final cut in 2026, bringing the rate to 2.75%-3.00%.
“The Federal Reserve’s decision to implement a larger-than-expected 50 basis point rate cut, which caught many market participants by surprise, reflects the Fed’s growing concerns about the impact of slowing global growth, trade tensions and persistently low inflation on the domestic economy,” said Anuj Goel, SEO at Century Private Wealth.
Charu Chanana, Head of FX Strategy at Saxo Bank, cautioned that while the Fed is steering towards a soft landing, the speed of rate cuts remains uncertain.
“The FOMC could become more fractured as the easing cycle continues, especially if data continues to present a mixed outlook,” noted Charu Chanana, Head of FX Strategy at Saxo Bank. “While the direction of travel is evident, the speed is far less certain. The Fed’s soft landing remains the primary goal, but the revision of the neutral rate higher and limited forward guidance will likely keep markets volatile.”
Gulf central banks follow suit
In response to the Fed’s rate cut, central banks in Saudi Arabia, the UAE, Kuwait, Qatar and Bahrain also announced interest rate cuts.
The Saudi Central Bank cut its repurchase rate by 50 basis points to 5.50% and its reverse repo rate to 5.00%. Similarly, the UAE Central Bank lowered its base rate on overnight deposits by 50 basis points to 4.90%. Qatar Central Bank reduced its deposit rate by 55 basis points to 5.20%, its lending rate to 5.70%, and the repurchase rate to 5.45%.
The Central Bank of Kuwait opted for a more modest reduction, lowering its discount rate by 25 basis points to 4.00%. Meanwhile, Bahrain’s central bank announced a 50 basis point cut in the overnight deposit rate to 5.50%, effective tomorrow.
