US announces first interest rate cut in four years

18 September 2024, 21:02

The US Federal Reserve has cut interest rates by a half-point in a surprise move.

This marks its first reduction in over four years in a dramatic decision for the world’s largest economy.

Coming just weeks before the presidential election, the Fed's move also has the potential to scramble the economic landscape just as Americans prepare to vote.

The Fed’s decision sees the key rate fall to roughly 4.8%, down from a two-decade high of 5.3%, where it had stood for 14 months amid soaring inflation.

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Inflation has continued to fall under President Joe Biden, going from 9.1% in 2022, to a three-year low of 2.5% last month.

Policymakers have suggested they continue to cut the rate by an additional half point in the year’s two remaining meetings.

And they expect four more rate cuts in 2025 and two in 2026.

In a statement, the Fed said it "has gained greater confidence that inflation is moving sustainably toward 2%".

Though the central bank now believes inflation is largely defeated, many Americans remain upset with still-high prices for groceries, fuel, rent and other necessities.

By cutting the rates, the Fed will hope to lower borrowing costs across the country. This includes mortgages, car loans and credit card repayments.

Average mortgage rates have already dropped to an 18-month low of 6.2%, according to Freddie Mac, spurring a jump in demand for refinancings.