The United States Federal Reserve has brought down its basic interest rate to 4.5% after cutting it down by 25 basis points. In the press conference following the announcement, Chairman of the Federal Reserve Jerome Powell said that the prospects of the US economy look very good and it’s doing relatively much better than its global peers. He’s also very optimistic about the US economy and thinks it’s in a very good place. However, he surprised market analysts by claiming that the Federal Reserve may only need to bring down rates only twice next year to bring the interest rate on par with the inflation rate.
Powell warned that inflation has stepped up its pace during the past few months, leading the Federal Reserve to prepare for more cautious outlook on further cuts next year. The Fed forecasts that the inflation rate will stabilise at 2.5% for next year but new uncertainties, partly due to a new government administration, cloud this forecast. The issue of uncertainty with regard to tariffs that could increase inflation was also mentioned.
Markets sold off on this news with the S&P500 going by down by 1.92% and long-term Treasury yields going higher. The Euro went down against the US Dollar by 1.24% and is at $1.036.
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