US Federal Reserve cuts interest rate by 25 basis points in key FOMC meet – Times of India

The US Federal Reserve cut the interest rate by 25 basis points on Wednesday, according to an official statement following the key FOMC meeting. This 25 basis points cut has led to the central banks benchmark policy rate being in the 4.25% to 4.50% range. This represents a decrease of one full percentage point from its September level, when the Fed initiated the relaxation of stringent monetary measures implemented to address the inflation spike that commenced in 2021.
The US central bank modified a crucial component of its interest rate management system on Wednesday by reducing the reverse repo facility rate more significantly than the federal funds rate reduction. The reverse repo rate has been decreased by 30 basis points to 4.25% from its previous 4.55%.
Market specialists suggest this anticipated adjustment represents the Federal Reserve’s effort to encourage the movement of funds away from a facility that is commonly regarded as an indicator of surplus liquidity within the financial framework.
The overnight reverse repo facility (ONRPP) rate, which the Federal Reserve offers, enables money market funds and other entities to deposit funds with the central bank through what essentially amounts to a secured loan. This ONRPP rate functions to establish a flexible lower boundary for all short-term interest rates.
“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective,” the FOMC statement read.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” the statement added.
Recent economic indicators, including Tuesday’s robust November retail sales data, align with the Federal Reserve’s assessment of a strong economy marked by strong growth, minimal unemployment, and gradually declining, yet persistently elevated inflation levels.
KPMG’s chief economist Diane Swonk in her pre-meeting analysis said, “Debate will be heated,” she said. “The economy remains stronger than participants at the meeting thought it would be when they started cutting in September, while improvements in inflation appear to have stalled … The Fed is going to want time to pause to see where we are and how policy may shift after the president-elect is sworn in.”
Following Trump’s inauguration on January 20, the Fed’s subsequent meeting occurs on January 28-29. A Reuters survey indicates that 58 out of 99 economists anticipate the central bank will maintain current rates during this meeting, allowing time to evaluate economic developments.