US Fed cuts interest rate by 50 bps to balance risks to economy

The US Federal Reserve on Thursday announced a 50 percentage point reduction in its key interest rate in a bid to ensure that the economic goals, including employment and inflation rate roughly are in balance.

The Federal Open Markets Committee (FOMC) decided to lower the target range for the federal funds rate by 0.50 percentage points to 4.75 to 5 per cent. 

But, Fed chief Jerome Powell made it clear that this is not the new norm and that the central bank will keep rates steady or even increase them based on the prevailing conditions.

Fed said the FOMC will carefully assess incoming economic data before considering any adjustments to the target range for the federal funds rate, which is targeted at achieving a 2 per cent longer term inflation rate while ensuring maximum employment.

Fed said the committee looks beyond economic projections and experts’ outlooks to a range of alternative possibilities to assess potential risks to the economy. The FOMC stands ready to adjust the monetary policy stance to address any risks that may emerge it added.

Stock markets reacted to the news with a steep drop in information technology stocks on Wednesday, which although was also influenced by market perceptions on Accenture's decision to delay staff promotions.

This, however, resulted in a wave of profit booking and a decline in stocks.

On the other hand, the US dollar reclaimed some past losses to reach levels before the Fed meeting, and seemed to gain further ground in days ahead.