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On Wednesday, the Federal Reserve reduced interest rates by 50 basis points to 5%, leading to notable volatility in the U.S. dollar. Initially, the dollar traded lower following the announcement but recovered some of those losses after Chair Jerome Powell’s press conference. Ultimately, the dollar slipped 0.08% after turbulent trading, closing at 100.93.
(U.S Federal funds Rate, Source: Forex Factory)
(U.S Dollar Index Daily Price Chart, Source: Trading View)
During the press conference, Powell emphasized that he doesn’t foresee a recession or economic downturn soon. The Fed’s primary objective is to stabilize inflation while preventing a rise in unemployment rates. Powell also highlighted that the 50 basis-point cut reflects the Fed’s strong commitment to these goals.
Republican presidential candidate Donald Trump remarked on the rate cut, calling it “a big cut” and speculating that such a significant reduction could indicate a very weak economy, unless the Fed was playing politics.
Additionally, policymakers anticipate the Fed’s benchmark rate to drop another half percentage point by year-end, with further reductions totalling 1.5 percentage points by 2026, bringing the rate down to a range of 2.75% to 3.00%.
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