The start of what many observers believe will be a prolonged period of monetary easing has finally been signaled by the US Federal Reserve’s hefty 0.5 percent interest rate drop.
This more drastic cut in borrowing costs comes in the wake of growing worries about the status of the job market in the United States.
The Federal Open Market Committee (FOMC) indicated increased confidence in inflation gradually approaching its 2 percent objective in its most recent statement.
The committee feels that there is now a greater balance in the risks associated with achieving the employment and inflation targets. Governor Michelle Bowman, however, favored a lesser 0.25 percent cut, thus not all authorities were in agreement.
According to the Fed’s forecasts, there will be three further reductions: a full percentage point drop in 2025, a final 0.5 percent cut in 2026, and another 0.5 percent reduction by the end of 2024.
The long-term federal funds rate is anticipated to end up somewhere between 2.75 percent and 3.00 percent, which is a minor increase over initial projections.
“This action underscores our increasing confidence that, with proper adjustments to our policy, the labor market can remain robust while inflation steadily declines toward our 2% target,” stated Fed Chair Jerome Powell in his explanation.
This is happening while Nigeria waits for the Central Bank of Nigeria Monetary Policy Committee meeting to decide on interest rates the following week.
Since his appointment in September of last year, the MPC has continued to implement tighter monetary policy under the direction of CBN governor Olayemi Cardoso.