US Federal Reserve cuts interest rates

WASHINGTON: The United States (US) Federal Reserve announced a 0.5 per cent cut in interest rates, adjusting the target range to between 5 per cent to 5.5 per cent.

The move is part of a broader strategy that has seen a total reduction of 4.7 per cent in interest rates over the fast four years.

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The Federal Reserve’s actions are designed to stimulate economic growth, particularly in response to various economic challenges that has emerged since COVID-pandemic as inflation hit several countries.

Interest rates are an important tool used by central banks world over to influence economic activity. When the US’ Federal Reserve lowers interest rates, it effectively reduces the cost of borrowing for consumers and businesses.

This encourages spending and investment, as loans for homes, cars and business expansions become more affordable.

Lower intestine rates can lead to an increased consumer confidence, as people are more likely to make significant purchases when financing costs are lower.

The mechanism behind interest rate adjustments involves the Federal Open Market Committee (FOMC), which meets regularly to assess economic conditions.

The FOMC considers several indications, including inflation rates, employment figures and overall economic growth. Once considered, it then makes decisions on interest rates. The goal is to balance that dual mandate of promoting maximum employment while ensuring price stability.

In the current economic climate, market experts ave expressed expectations that further interest rate reduction may occur within the year.

Analysts suggest that an additional cut of 0.5 per cent could be on the table, depending on the economic performance and inflation trends.

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The US Federal Reserve’s ability to respond to hanging economic conditions is important, as it seeks to navigate the complexities of a fluctuating economy.

However, economists caution most central banks need to also be mindful of the fact that potential risks associated with prolonged low interest rates, including the possibility of inflation and asset bubbles.