Editor's note: This story has been updated with additional details.
The Federal Reserve slashed interest rates by 50 basis points Wednesday at its September Federal Open Market Committee meeting, lowering the federal funds rate to a range of 4.75% to 5%. This marks the first rate cut in over four years and breaks a streak of 12 consecutive months with rates held steady.
The decision caught Wall Street analysts off guard who had largely anticipated a more modest 25-basis-point cut. The larger reduction resonated with investor sentiment, which had leaned toward a more aggressive easing approach at the start of the rate-cut cycle.
"The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent," the FOMC statement says.
In its updated Summary of Economic Projections, the Fed marginally revised its forecasts. Economic growth for the current year was lowered to 2%, down from 2.1% in June, while projections for 2025 and 2026 were unchanged. Inflation projections saw downward revisions for both 2024 and 2025, while the unemployment rate was revised upward across 2024, 2025 and 2026.
The updated quarterly Dot Plot -- a tool used by the FOMC to signal its future policy intentions -- indicates a more aggressive path for rate cuts than previously projected.
The September median projection now points to 100 basis points of cuts in 2024, with the federal funds rate expected to fall to a midpoint of 4.4% by the end of this year. This suggests the Fed could enact 25 basis-point cuts at both the November and December meetings.
Further into the future, the Dot Plot signals the fed funds rate will drop to between 3.25% and 3.5% by the end of 2025, implying an additional 100 basis points of cuts. By the end of 2026 and the newly introduced projections for 2027, interest rates are expected to fall to 2.9%.
This outlook marks a significant shift from the Fed's June projections, which anticipated only one rate cut in 2024, followed by 100 basis points of cuts in both 2025 and 2026.
All eyes now turn to Fed Chair Jerome Powell's press conference at 2:30 p.m. ET, where he is expected to provide further insights into the central bank's decision and its outlook for the economy.
The 50-basis-point rate cut triggered a sharp fall in the value of the U.S. dollar, with the greenback weakening across the board, particularly against the Japanese yen which rose by 1%.
Image created using artificial intelligence via Midjourney.
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