On Wednesday, the Federal Reserve announced that it is cutting interest rates by 0.5 percentage points. This was the first major tax cut in the last four years. Although the tax cut will help everyone, it will especially help inflation-weary consumers who are grappling with high rates of many things, from mortgages to credit cards.
The cut has lowered the federal fund rates from 4.75% to 5%, a 0.5% decline from the previous range of 5.25% to 5.5%, which was the highest fund rate in the 21st century. The o.5% cut signifies that the Feds are doing everything possible to ensure the economy doesn’t stall. This is evident by the fact that previously, the biggest cut ever done was just 0.25%.
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Brian Coulton, chief economist at Fitch Ratings, shared his views on the rate cut and said, “This is a bit of a surprise. The cuts suggest an abrupt switch of focus back to the maximum employment mandate and a very sharp improvement in confidence in inflation progress in the last month and a half.” He further added, “The latter is a little hard to understand given the incoming inflation data, and it suggests that the Fed may be more concerned than most about the state of the labor market, where the pace of job creation still looks pretty solid.”
Another reason for rate cuts is the labour market’s weakness, which is still significant, although not as low as lockdown. During the lockdown, the labor market became hot because of a lack of personnel, which increased the price of their services and created instability.
