The US has entered a monetary easing cycle — the Federal Reserve System has made a fairly radical rate cut, which was expected by the markets. How this decision could affect the US economy and why the regulator’s forecasts raise questions
On September 18, the Federal Open Market Committee lowered the target rate range by 0.5 percentage points at once — from 5.25-5.5% to 4.75-5%. This step was the most anticipated by investors; its probability, judging by rate futures, was about 60%. At the same time, analysts expected a more cautious reduction — by 0.25 percentage points.
It is worth recalling that the rate hike began in March 2022, when it first rose from zero to 0.25-0.5%. Historically, rate increases have been a standard method of combating high inflation, but ultimately a high rate could lead to a recession because it reduced the availability of credit and the level of consumption. But in 2022-2024, we saw a completely different picture: with rising rates, inflation around the world, including the US, declined very slowly, and the economy remained stable. For example, in 2022 and 2023, GDP growth in the US was 1.9% and 2.5%, respectively, and inflation reached 6.5% and then declined to 3.4% by the end of 2023.