US Fed slashes rates by 50 basis points for the first time since 2020

The US Federal Reserve cut its key lending rate by 50 basis points on Wednesday, marking its first reduction since the pandemic and significantly lowering borrowing costs just ahead of November's presidential election.

Policymakers voted 11 to 1 to set the central bank's benchmark lending rate between 4.75 percent and 5.00 percent, as stated in the Fed's announcement. They also indicated plans for an additional half-point reduction by the end of this year and an extra percentage point cut in 2025.

This decision will influence the interest rates at which commercial banks lend to consumers and businesses, reducing borrowing costs for everything from mortgages to credit cards less than two months before the presidential election.

The Fed noted that its rate-setting committee "has gained greater confidence that inflation is moving sustainably toward 2 percent" and believes the risks to achieving its employment and inflation goals are roughly balanced.

The central bank operates under a dual mandate from Congress to independently address both inflation and employment.

In updated economic forecasts released with the rate decision, the median projections indicated an unemployment rate of 4.4 percent on average for the fourth quarter of this year, up from 4.0 percent in the previous June update. Officials also estimated an annual headline inflation rate of 2.3 percent, slightly lower than earlier projections.

Gold rallies

Gold reached a record high following the Federal Reserve's decision.

While the Fed's move was widely anticipated after maintaining rates at a two-decade high for over a year, traders and analysts were divided on the extent of the initial cut. In New York, gold prices climbed as much as 0.8%, hitting a new all-time high of $2,590.13.

This year, gold prices have surged dramatically, increasing over 25% to set consecutive records. The rally began in early 2024, driven by strong demand from emerging markets, particularly central banks and Asian consumers. Recently, however, the focus has shifted to the Fed's actions and the economic outlook in the US. As a non-yielding asset, gold typically thrives in a low-rate environment, and concerns about a recession often lead investors to seek safety in gold.