Hailey Whitlock, Writer  

On Sept. 18, 2024, the Federal Reserve, the department responsible for setting federal interest rates as the central bank of the United States, announced an anticipated interest rate cut. This cut, the first since March of 2020, comes after a long period of deliberation from the board’s members regarding the current economy. A rather dramatic choice, the Federal Reserve’s decision to cut interest rates by 50 basis points, as opposed to the more gradual 25, has been widely debated prior to Wednesday’s announcement. 

The 50 basis point cut, an interest rate decrease of half a percent, brings federal interest rates from 4.75% to 5.25%. The decision was made in relation to both the inflation and unemployment rates in the United States. For the last four years, the Federal Reserve has operated utilizing interest rate increases in an effort to tame intense inflation. However, a reduction in interest rates suggests an optimistic outlook regarding inflation in the future. Jerome Powell, the chairmen of the Federal Reserve, insists that such a move is feasible due to the fact that inflation is stabilizing and moving towards the Federal Reserve’s 2% goal. In fact, according to NPR, inflation fell to 2.5% this month, a sharp contrast to the inflation peak in June of 2022 at 9.1%. 

A decrease in interest rates is also connected to the job market. According to the Bureau of Labor Statistics, in July the unemployment rate reached its highest point since October of 2021 at 4.3%. In August, unemployment remained relatively stable at 4.2%. Generally at such rates, unemployment rates continue to climb. However, according to Global News, it is noted that unemployment rises in the United States as of late have been driven primarily by an influx of job seekers, as opposed to widespread layoffs. The decision to cut interest rates encourages growth in the economy. By reducing interest rates, more consumers are encouraged to buy which in turn entices companies to expand. This effect often leads to the creation of new jobs which has the potential to decrease unemployment rates. 

Despite the rather forceful cut, economists believe that further interest rate cuts will be incoming within the next two years. According to NPR, members of the Federal Reserve Committee believe that a second cut by a half percentage point will be carried out prior to year’s end, while reductions of one percent will be completed by the end of next year. 

When questioned about the impact of such a crucial decision only months prior to the presidential election, Powell insists that the Federal Reserve seeks to adjust the economy to the benefit of Americans, as opposed to advocating a political agenda. According to Fortune, when prompted about the politics behind the decision, Powell stated, “We’re always going into the meeting and asking, ‘What’s the right thing to do for the people we serve?’ We do that and we make a decision as a group and then we announce it. That’s always what it is, it’s never about anything else. Nothing else is discussed.” 

The Federal Reserve’s decision to cut interest rates by half a percentage point elucidates a perceived success over rampant inflation, turning resources to strengthen the economy and tackle the problem of unemployment. This cut is only one of the string of interest cuts anticipated over the next two years, indicating further adjustments in the near future.