Before US election,Federal Reserve lowers US interest rates

The US Federal Reserve cut its key lending rate by half a percentage-point Wednesday in its first reduction for more than four years, sharply lowering borrowing costs shortly before November's presidential election.The Fed's decision will affect the rates at which commercial banks lend to consumers and businesses, bringing down the cost of borrowing on everything from mortgages to credit cards.The move marks the beginning of the end of the Fed's high interest rate environment aimed at throttling demand, with inflation now easing towards the central bank's long-term two-percent target and the labor market continuing to cool amid a surprisingly resilient post-Covid economy.
Fed rate cut is probably good news for Democratic presidential candidate and US Vice President Kamala Harris, who is running against Republican former president Donald Trump in the upcoming election. This is the first reduction since the onset of the Covid-19 pandemic in 2020.Policymakers voted 11-to-1 in favor of lowering the central bank's benchmark rate to between 4.75 percent and 5.00 percent, the Fed announced in a statement.They also penciled in an additional half-point of cuts before the end of this year, and an added percentage-point of cuts in 2025.
"It is time to recalibrate our policy to something that is more appropriate, given the progress on inflation, and on employment moving to a more sustainable level," Fed Chair Jerome Powell told reporters after the decision was announced.
"This is the beginning of that process," he added.The Fed said its rate-setting committee "has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance."

(Writer is a Finance Research Analyst, based in Gandhinagar, Gujarat)