As expected by the market, the Federal Reserve has initiated an easing cycle, lowering interest rates for the first time in four years. What has excited the market even more is that the Federal Reserve has made a significantly larger rate cut than usual right from the start.

On Wednesday, September 18th, Eastern Time, following the Federal Open Market Committee (FOMC) meeting, the Federal Reserve announced a 50 basis point cut in the target range for the federal funds rate, from 5.25%-5.50% to 4.75%-5.0%. This is the first interest rate cut since the Federal Reserve began its tightening cycle in March 2022.

However, this decision was opposed by Fed Governor Bowman, who only wanted to cut rates by 25 basis points. She is the first Fed Governor to vote against the Fed's interest rate decision since 2005. The other 11 voting members of the Fed all voted in favor of lowering the Fed's policy rate by 50 basis points.

The latest statement and resolution from the Federal Reserve.

The following is a detailed comparison of the content between the Federal Reserve's current and previous statements.

According to the translation by Wall Street News, the black text is the same as the FOMC statement in July 2024. The black text in parentheses is additional explanatory content. The red text is the new addition in September 2024. The blue text in parentheses is the deleted wording from the July statement.

Recent indicators indicate that economic activity continues to expand steadily. Job growth has slowed and the unemployment rate has risen, but remains low. Inflation is moving further towards the committee's (Note: FOMC committee) 2% target, but remains slightly above the target. (Inflation has slowed somewhat over the past year, but still remains somewhat high. In recent months, some further progress has been made in achieving the committee's 2% inflation target.)

The committee (Note: FOMC committee) strives for maximum employment and a 2% inflation rate in the long run. The committee is more confident that inflation will sustainably approach 2%, and believes that the risks to achieving the employment and inflation goals are broadly balanced. The economic outlook is uncertain, and the committee is concerned about the risks facing its dual mandate.

Given the progress of inflation and the balance of risks, the committee has decided to lower the federal funds rate target range by 0.5%, to 4.75% to 5%. (To support the committee's goals, the committee has decided to keep the target range for the federal funds rate at 5.25% to 5.50%.) When considering further adjustments to the target range for the federal funds rate, the committee will carefully assess future data, evolving outlooks, and risk balance. (The committee anticipates that it is not appropriate to lower the target range until there is more confidence in inflation's progress towards 2%.) (In addition, the committee will continue to reduce its holdings of U.S. Treasury, agency debt, and agency mortgage-backed securities. The committee remains firmly committed to supporting full employment and restoring the inflation rate to the 2% target.)

In assessing the appropriate monetary policy stance, the Committee will continue to monitor the impact of the latest information on the economic outlook. If there are risks that may hinder achieving the goals, the Committee will be prepared to adjust its monetary policy stance accordingly. The Committee's assessment will be based on extensive information, including labor market conditions, inflation pressures and expectations, and changes in financial and international situations.

Voters in favor of this monetary policy include: FOMC Chairman Jerome H. Powell, Committee Vice Chairman John C. Williams (President of the New York Fed), Barkin (President of the Richmond Fed), Barr (Board Member of the Fed), Bostic (President of the Atlanta Fed), [Bowman (Board Member of the Fed)]; Cook (Board Member of the Fed); Daly (President of the San Francisco Fed); Hammack (President of the Cleveland Fed), [Goolsbee (President of the Chicago Fed)]; Jefferson (Board Member of the Fed), Kugler (Board Member of the Fed) and Waller (Board Member of the Fed). The action was voted against by Bowman (Board Member of the Fed), who favored lowering the target range for the federal funds rate by only 1/4 of a percentage point at this meeting. [Goolsbee (President of the Chicago Fed) voted as an alternate member at this meeting.]

The latest economic forecast from the Federal Reserve.

The Federal Reserve's latest forecast shows that this year's economic growth is expected to reach 2.0% and the unemployment rate is projected to reach 4.4% in the fourth quarter.

The Federal Reserve projects US GDP growth to be 2.0% in 2024, with a projection of 2.1% in June; it expects US GDP growth to be 2.0% in 2025, with a projection of 2.0% in June; it expects US GDP growth to be 2.0% in 2026, with a projection of 2.0% in June; it expects US GDP growth to be 2.0% in 2027; it expects long-term US GDP growth to be 1.8%, with a projection of 1.8% in June.

The Federal Reserve expects the unemployment rate to be 4.4% in 2024, projected to be 4.0% in June; expects the unemployment rate to be 4.4% in 2025, projected to be 4.2% in June; expects the unemployment rate to be 4.3% in 2026, projected to be 4.1% in June; expects the unemployment rate to be 4.2% in 2026, projected to be 4.1% in June; expects the long-term unemployment rate in the United States to be 4.2%, projected to be 4.2% in June.

The Federal Reserve expects core PCE inflation to be 2.6% in 2024, with a forecast of 2.8% in June; it is expected to be 2.2% in 2025, with a forecast of 2.3% in June; it is expected to be 2.0% in 2026, with a forecast of 2.0% in June; it is expected to be 2.0% in 2027; it is expected that PCE inflation will be 2.3% in 2024, with a forecast of 2.6% in June; it is expected to be 2.1% in 2025, with a forecast of 2.3% in June; it is expected to be 2.0% in 2026, with a forecast of 2.0% in June; it is expected to be 2.0% in 2027; it is expected that longer-term PCE inflation will be 2.0%, with a forecast of 2.0% in June.

The median of the Federal Reserve dot plot shows that the Fed will cumulatively cut interest rates by 100 basis points in 2024. After a 50 basis point rate cut in September, there is an expectation of another 50 basis points rate cut. The Fed is expected to cut interest rates by another 100 basis points in 2025, which is the same as the rate cut expected in the June dot plot.

The Federal Reserve expects the federal funds rate to be 4.4% at the end of 2024, 5.1% in June; 3.4% at the end of 2025, 4.1% in June; 2.9% at the end of 2026, 3.1% in June; 2.9% at the end of 2027; the long-term federal funds rate is expected to be 2.9%, 2.8% in June.

Editor/Somer