Fed slashes US interest rates amid ‘uncertain’ outlook

The Federal Reserve in a dramatic move lowered US interest rates by 0.5 percentage points on Wednesday night, warning the economic outlook was “uncertain”.

The Fed cut its lending rate from what was a 23-year high of between 5.25pc and 5.50pc to a lower range of 4.75pc to 5pc.

The central bank’s rate-setting committee said in a statement: “The Committee has gained greater confidence that inflation is moving sustainably toward 2pc, and judges that the risks to achieving its employment and inflation goals are roughly in balance. 

“The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

The first rate cut in the US since March 2020 when Covid struck instantly boosted markets, with the S&P 500 up 0.6pc up 0.8pc.

However there is likely to be some concern as it suggests the Fed sees the economy as weaker than expected.

The Fed’s “dot plot”, which indicates the likely future outlook for interest rates, signals the central bank plans to cut borrowing costs by another half a percentage point by the end of the year.

It comes as rate-setters at the Bank of England on Thursday will vote on whether to cut interest rates for a second time this year. They are widely expected to vote to hold interest rates unchanged. 

The Fed’s rate cut comes after a flurry of data suggested that the US labour market is cooling and price pressures easing. 

Democratic candidate Kamala Harris is likely to use the outsized cut as proof to voters that the party has presided over falling inflation and a growing economy. 

Republican candidate Donald Trump earlier this year accused Mr Powell of being ‘political’ and said he would cut interest rates to “help the Democrats”.