On Wednesday, the U.S. Federal Reserve made its first interest rate cut in four years, lowering the benchmark federal funds rate by 50 basis points to a new range of 4.75% to 5.00%.

This move aligns with market expectations and is a response to ongoing economic concerns, marking the first such cut since March 2020.

The Federal Open Market Committee (FOMC) explained the decision, stating that economic activity has continued to grow, but the labor market has shown signs of slowing, with the unemployment rate rising slightly while still remaining low. Inflation is gradually approaching the Fed’s target of 2%, though it remains elevated. The Committee now believes that the risks to employment and inflation are balanced.

The key statement comes from the Federal Reserve FOMC statement, stating,

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.

Immediately following the rate cut, Bitcoin’s price surged 1.2% to $61,000 before retracting slightly, reflecting heightened market activity.

Source: BNC Bitcoin Liquid Index

Other assets followed suit, with the tech-heavy Nasdaq gaining 0.8% and the S&P 500 rising by 0.6%. Gold also spiked 0.8%, reaching a new all-time high of over $2,600.

The central bank is expected to approve further cuts in 2024. According to the Fed’s quarterly economic projections, another 50 basis points of rate reductions could bring the benchmark rate to 4.4% by the end of the year.

The Fed did not rule out additional rate cuts, signaling that future decisions will depend on incoming economic data. “In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the Fed’s statement added.

Fed Chair Jerome Powell later spoke to the media to provide more context on the decision and the outlook for future rate cuts. He said, “We don’t think we are behind, we think this is timely. I think you can take this as a sign of our commitment not to get behind, so it’s a strong move.”

It’s expected that the Fed’s decision will trigger short-term volatility in financial markets, as traders adjust their positions.

The rate cut underscores the Fed’s efforts to balance growth and inflation amid a complex economic landscape, setting the stage for further market shifts in the months ahead.

Finally, below is a comparison of today’s Federal Open Market Committee statement with the one issued after the Fed’s previous meeting in July.

Text removed from the July statement is in red with a line through it. New text appearing for the first time in today’s statement is in red and underlined.

Black text appears in both statements.

Source: X

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