As was widely expected, the U.S. Federal Reserve has lowered interest rates by 25-basis points and signaled that further monetary policy easing is likely in coming months.
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The rate cut was announced at the conclusion of the U.S. central bank’s latest policy meeting. Futures traders were betting nearly 100% that the U.S. central bank would lower its benchmark fed funds rate by a quarter of a percentage point after delivering a larger 50-basis point cut this September.
The fed funds rate, which determines the interest that banks charge each other for overnight lending, is now in a range of 4.50% to 4.75%. The Federal Reserve is widely expected to lower interest rates further as the U.S. inflation rate has declined to 2.4% from a peak of more than 9% in 2022.
Declining Inflation in America
Inflation in the U.S. is now close to the central bank’s 2% annualized target, giving it leeway to reduce interest rates that it had ratcheted up in recent years. Currently, markets are pricing in another 25-basis point interest rate cut in December of this year followed by multiple rate cuts in 2025.
Futures traders expect the benchmark fed funds rate to be in a target range of 3.75% to 4% by the end of 2025. As he often does, Federal Reserve Chair Jerome Powell emphasized that any future interest rate decisions from the central bank will be data dependent.
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