Impact of Federal Reserve Rate Cuts

The recent reduction of the Federal Reserve policy rate by half a percentage point indicates concerns about the economy slowing down more than anticipated. In the past 25 years, such a substantial cut has often preceded a recession, occurring in 2001, 2007, and 2020. Conversely, more modest quarter-point cuts in 1995, 1998, and 2019 saw the economy avoid recession. The current decision by the Fed may reflect a precarious balance between managing inflation and employment risks as the labor market cools.