(September 19, 2024) – Larger than a standard rate cut, on Wednesday, the Federal Open Market Committee (FOMC) announced it would be cutting interest rates by 50 basis points. It's the first time the Federal Reserve has cut rates in over four years, since March 2020.
It's the aggressive move that markets expected and signals the Fed is focused on boosting a cooling job market. Fed officials projected that the unemployment rate would stand at 4.4 percent by the end of the year, up from 4.2 percent now. A further rise in joblessness could be more painful and more swift.
Recent indicators suggest that economic activity has continued to expand steadily. Job gains have slowed, and the unemployment rate has increased but remains low. Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated.
The Committee seeks maximum employment and inflation at 2 percent over the longer run. It has gained greater confidence that inflation is moving sustainably toward 2 percent 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.
In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4.75% to 5%.
This ends the central bank's aggressive inflation fighting during the pandemic and confirms Fed Chair Jerome Powell's remarks during his address at Jackson Hole last month, during which he said that "the time has come for policy to adjust": The economy is continuing to inch toward the Fed's 2% inflation target, and it would soon be appropriate to ease off of the restrictive monetary policy.
The consumer price index, which measures inflation, rose 2.5% year over year in August, coming in below July's 2.9% reading. The unemployment rate also unexpectedly ticked down in August, giving the Fed the data it needed to cut rates.
"Despite slowing job growth, we expect the economy will avoid a recession, and a soft landing will buoy occupier confidence, resulting in resilient demand for space across all commercial property types," according to CBRE economist Richard Barkham, Ph.D., MRICS.
The Fed expects an additional 50 bps in cuts this year and 100 bps in 2025. The forthcoming rate cuts and lower bond yields will bolster commercial real estate investment activity and asset values. CBRE forecasts a 5% increase in annual investment activity this year, with further acceleration next year.