Federal Reserve Surprises With Hefty Interest Rate Cut

The Federal Reserve raised eyebrows Wednesday with a bigger-than-expected cut in a key interest rate, a move that will likely fuel speculation about the trajectory of the U.S. economy headed into the November presidential election.

The central bank decreased the rate at which banks lend to each other overnight from a range of 5.5% to 5.25% by a half-percentage point to 5% to 4.75%. Many Wall Street economists had been expecting a smaller quarter-point cut as the start of a small cycle of similar cuts in the coming months.

Still, bond traders had been looking to a half-point reduction last week before expectations fell back again closer to a quarter-point cut, according to Reuters.

The cut puts an emphatic end to the Fed’s fight against inflation, which led it to raise rates from near zero to above 5% in 2022 and 2023, sparking fears of a recession. But the economy defied expectations in 2023 by continuing to grow robustly.

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