US Fed Lowers Key Interest Rate by 0.25%P as Expected..."Balancing Employment and Inflation Risks"

Base Interest Rate Set at 4.5~4.75% Annually
Speed Adjustment After September Big Cut

The U.S. Federal Reserve (Fed) cut the benchmark interest rate by 0.25 percentage points as expected. After initiating a monetary easing cycle for the first time in two years and six months with a 'big cut' (0.5 percentage point rate cut) in September, it has now implemented a 'small cut' (0.25 percentage point cut). This appears to be a move to moderate the pace of rate cuts amid a robust economic expansion and easing inflation.

Yonhap News

On the 7th (local time), the Fed announced in its policy statement released after the Federal Open Market Committee (FOMC) regular meeting that it unanimously decided to lower the federal funds rate from the previous 4.75?5.0% to 4.5?4.75%, a 0.25 percentage point cut. This follows the 0.5 percentage point cut from 5.25?5.5% in September, marking an additional rate cut after two and a half years. As a result, the interest rate gap with South Korea has narrowed to 1.5 percentage points at the upper bound.

In the policy statement, the Fed said it aims to achieve maximum employment and 2% inflation in the long term, and assessed that the risks related to achieving employment and inflation goals are roughly balanced.

Regarding the labor market, it evaluated that "conditions have generally eased and the unemployment rate has risen but remains low." Economic activity was seen as "expanding at a solid pace."

The Fed removed the phrase expressing "greater confidence" that inflation is steadily slowing to 2%. Instead, it assessed that inflation is "still somewhat elevated but has made progress toward the Committee's 2% goal."

Following the Fed's rate cut, the S&P 500 and Nasdaq indices in the New York stock market have risen by 0.62% and 1.36%, respectively. The Dow Jones Industrial Average is down slightly by 0.02%. Treasury yields are falling. The U.S. 10-year Treasury yield, a global bond yield benchmark, dropped 7 basis points (1bp = 0.01 percentage points) from the previous trading day to 4.35%, and the 2-year Treasury yield fell 3 basis points to 4.23%.

The market is awaiting the press conference of Fed Chair Jerome Powell, scheduled for 2:30 p.m. Eastern Time (4:30 a.m. Korean time on the 8th).