Monetary policy US Federal Reserve lowers key interest rate by 0.5 percentage points

For the first time in four years, the US Federal Reserve has lowered its interest rate by 0.50 percentage points. The range of key interest rates will be reduced to between 4.75 and 5.00 percent, the Fed announced in Washington on Wednesday.

The US central bank reacted to the slowdown in inflation and lowered its key interest rate for the first time in more than four years. This is the rate at which commercial banks can borrow central bank money. This is an unusually large interest rate cut. The central bank is also signaling further interest rate cuts this year.

The change of course towards a looser monetary policy had been expected. However, it was unclear whether the central bank of the world's largest economy would opt for this large interest rate jump or choose the more cautious path and only lower interest rates by 0.25 percentage points.

The Fed last cut the key interest rate in March 2020 to stimulate the economy during the onset of the coronavirus pandemic. After that, interest rates initially remained at the zero mark. Until the Fed began raising rates at a record-breaking pace in March 2022.

In the USA, however, the upward pressure on prices has now slowed recently. The inflation rate fell to 2.5% in August. In 2022, this had still amounted to a good 9 percent at times. However, the rate is currently still above the Fed's inflation target of 2%.

Other central banks, such as the European Central Bank (ECB) and the Swiss National Bank (SNB), had already initiated a turnaround in interest rates.

SDA