On Wednesday, the US Federal Reserve announced a half-point cut in its main key rate, bringing it down to 4.4%. This landmark decision marks a turning point in US monetary policy, with the aim of curbing the risks of a rapid deterioration in the job market and ensuring a return to controlled inflation.
In a statement issued after the meeting, the Fed emphasized that “the committee’s confidence in a sustainable return to 2% inflation has strengthened”, while reaffirming its commitment to full employment and price stability. This strategic choice comes as signals of an economic slowdown multiply, prompting the central bank to opt for a more aggressive approach than expected.
A significant reduction to avoid a crisis
This half-point cut in the key rate exceeded the initial expectations of economic observers, who were anticipating a gradual adjustment. However, in the face of mounting concerns about the job market, the Fed felt it necessary to act vigorously to ward off a possible crisis. According to the projections unveiled on Wednesday, central bank officials remain divided on the extent of the adjustments to come. Some anticipate one or two further cuts of a quarter-point between now and the end of the year, while others consider that the movement begun today will be sufficient to stabilize the economy.
The normalization of key interest rates is set to continue next year, with a further reduction to around 3.4% expected by the end of 2025. This strategy is designed to support gradual disinflation, while at the same time preserving economic growth.
Inflation under control, but challenges persist
In terms of inflation, the Federal Reserve now expects a rise to 2.6% in 2023, compared with a forecast of 2.8% last June. This slightly more favorable trend reflects the effectiveness of the measures taken to date. However, a return to the 2% target is still expected in the longer term, probably by 2026.
On the employment front, the situation is more mixed. The unemployment rate, which has recently stabilized, is set to rise to 4.4% by the end of next year, up from the 4% forecast in previous estimates. This figure underlines the persistent tensions on the labor market, despite the Fed’s efforts to prevent unemployment from rising too sharply.
A delicate balance between inflation and growth
With this decision, the Federal Reserve is demonstrating its determination to maintain a delicate balance between fighting inflation and supporting employment. By acting preventively, it hopes to avoid a recession while preserving the growth gains of recent months. But there are still many challenges ahead: disinflation, although underway, may prove slower than expected, and the resilience of the economy in the face of these monetary adjustments will be decisive.
For the time being, financial markets are greeting this announcement with caution. While the rate cut offers immediate relief to investors, uncertainty remains over future adjustments and the Fed’s ability to avoid a prolonged economic slowdown.
The December meeting will therefore be eagerly awaited, as it could clarify the scope and direction of future monetary policy adjustments. The Fed, for its part, continues to pursue its mission of guiding the US economy onto a path of stability and sustainable growth.
