The U.S. Federal Reserve delivered a pivotal policy shift, cutting interest rates by a quarter point and signaling an imminent end to its quantitative tightening (QT) program. The move, announced after the June 2024 FOMC meeting, reflects the central bank’s balancing act between cooling inflation and sustaining economic growth.
Fed’s Quarter-Point Rate Cut: Key Details
The Federal Reserve reduced the benchmark federal funds rate by 25 basis points (bps) to a range of 5.00%-5.25%, marking its first rate cut since 2020. Fed Chair Jerome Powell framed the decision as a “risk management” step rather than the start of an aggressive easing cycle.
“Economic growth is moderating, and while inflation remains elevated, this adjustment helps mitigate downside risks,” Powell stated.
The cut follows slower-than-expected Q1 2024 GDP growth (1.6%) and persistent inflation, with the core PCE index at 2.8% year-over-year.
Quantitative Tightening (QT) Wind-Down
The Fed also confirmed plans to taper and eventually halt QT—its balance sheet reduction program—by early 2025. Since mid-2022, the Fed has allowed up to $95 billion monthly Treasury and mortgage-backed securities to roll off.
Powell justified the slowdown, stating:
“We aim to prevent market volatility while transitioning to a neutral policy stance.”
Analysts tie the shift to concerns over banking system liquidity, recalling the 2019 repo market crunch and 2023 regional bank crisis.
Market Reactions: Stocks Surge, Bonds Mixed
- Equities: S&P 500 (+1.5%), Nasdaq (+2%)
- Treasuries: 10-year yield fluctuated post-announcement
- Forex: Dollar weakened against euro and yen
- Emerging Markets: Relief as Fed dovishness eases currency pressures
Implications for India & Global Economies
Opportunities:
– Weaker dollar may stabilize the rupee
– Lower U.S. rates could boost foreign inflows into Indian markets
Challenges:
– India’s inflation (5%) limits RBI’s rate-cut flexibility
– Fed’s cautious stance may delay aggressive easing by other central banks
What’s Next for the Fed?
- Markets price in 65% chance of a September rate cut
- Future moves remain data-dependent, with focus on jobs, inflation, and geopolitics
The Fed’s message is clear: It’s easing off the brakes—but not yet hitting the gas.
