US interest rates have been slashed for the first time in more than four years – by more than many expected – amid fears the world’s largest economy is flagging.
The US central bank, the Federal Reserve, brought interest rates down by 0.5percentage points to 4.75% to 5%.
Unlike the UK, the US interest rate is a range to guide lenders rather than a single percentage.
Bringing down inflation to 2% is a primary goal of the Fed and it has used interest rates to draw money out of the economy by making borrowing more costly since 2022, when the Ukraine/Russia price shock hit.
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Recent figures show the Fed is not far from its inflation target – with the main measure hitting 2.5% in August, the lowest rate in three years.
But signs of a weakening economy emerged last month as data on job creation led to recession fears.
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The Fed signalled in its statement that while it was confident on both the inflation and growth outlooks, a slowdown in the pace of hiring was a cause for concern.
Only one member of its rate-setting committee dissented on the 0.5 percentage point reduction. Financial market participants had been split on whether it would go for the 0.25 option instead.
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US stocks rallied in the wake of the decision, with the Dow Jones Industrial Average and broader S&P 500 both up by more than 0.5% from flat positions moments before the rate decision was revealed.
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Trump criticises Harris on economy
The dollar was trading a cent lower versus sterling at $1.32.
Some market analysts said the Fed’s move showed Fed chair Jay Powell and his fellow policymakers had been too slow to react to the employment slowdown.
He told reporters: “We’re going to be making decisions meeting by meeting, based on the incoming data and the evolving outlook, the balance of risks… it’s a process of recalibrating our policy stance away from where we had it a year ago, when inflation was high and unemployment low, to a place that’s more appropriate given where we are now and where we expect to be.
Image: Federal Reserve Chairman Jerome Powell Pic: AP
“That process will time time”, he added, saying there would be no “rush”.
Michael Sheehan, fund manager of fixed income at EdenTree Investment Management, said: “Kicking off this cutting cycle with a 50 basis point reduction will undoubtedly vindicate those who had argued that the Fed had fallen behind the curve.
“Any doubts that this cutting cycle would be any less dramatic than previous ones have been firmly laid to rest.
“We expect this larger cut of 50 basis points to boost risk assets in the short term. The key for markets, and indeed the Federal Reserve, will be how far the softening of the labour market has to run.
“Powell will be hoping that taking aggressive action early will go some way to curtailing a substantial weakening and achieve the elusive soft landing.”
What about the UK?
It comes as the UK central bank the Bank of England meets on Thursday to make its own interest rate decision.
While the Bank will focus on UK economic data – and on Wednesday afternoon was expected by markets to hold rates – it could be influenced by US decision-making.
Lower interest rates tend to weaken currencies, so a big cut from the Fed could be good news for the pound.
While being able to buy more dollars is good news for people holidaying in the US and paying for imports like oil, it’s bad news for exporters who get less for their goods as a result and have a less competitive product.
Lower exports can slow inflation, meaning the Bank could be more likely to cut.
Mature, developed economies like the UK and US became ever more reliant on cheap imports from China and, in the process, saw their manufacturing sectors shrink.
Large swathes of the rust belt in the US – and much of the Midlands and North of England – were hollowed out.
And to some extent that’s where the story of Donald Trump’s “Liberation Day” really began – with the notion that free trade and globalisation had a darker side, a side he wants to remedy via tariffs.
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Trump’s tariffs: Ed Conway analysis
He imposed a set of tariffs in his first term, some on China, some on specific materials like steel and aluminium. But the height and the breadth of those tariffs were as nothing compared with the ones we have just heard about.
Not since the 1930s has the US so radically increased the level of tariffs on all nations across the world. Back then, those tariffs exacerbated the Great Depression.
It’s anyone’s guess as to what the consequences of these ones will be. But there will be consequences.
Consequences for the nature of globalisation, consequences for the US economy (tariffs are exceptionally inflationary), consequences for geopolitics.
Image: Imports from the UK will face a 10% tariff, while EU goods will see 20% rates. Pic: Reuters
And to some extent, merely knowing that little bit more about the White House’s plans will deliver a bit of relief to financial markets, which have fretted for months about the imposition of tariffs. That uncertainty recently reached unprecedented levels.
But don’t for a moment assume that this saga is over. Nothing of the sort. In the coming days, we will learn more – more about the nuts and bolts of these policies, more about the retaliatory measures coming from other countries.
We will, possibly, get more of a sense about whether some countries – including the UK – will enjoy reprieves from the tariffs.
To paraphrase Churchill, this isn’t the end of the trade war, or even the beginning of the end – perhaps just the end of the beginning.
Actors, directors and celebrity friends have paid tribute to Val Kilmer, after he died aged 65.
The California-born star of Top Gun, Batman and Heat died of pneumonia on Tuesday night in Los Angeles, his daughter Mercedes told the Associated Press.
She said Kilmer was diagnosed with throat cancer in 2014 but later recovered.
Tributes flooded in after reports broke of the actor’s death, with No Country For Old Men star Josh Brolin among the first to share their memories.
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2:49
Watch: Val Kilmer in his most iconic roles
He wrote on Instagram: “See ya, pal. I’m going to miss you. You were a smart, challenging, brave, uber-creative firecracker. There’s not a lot left of those.
“I hope to see you up there in the heavens when I eventually get there. Until then, amazing memories, lovely thoughts.”
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Kyle Maclachlan, who co-starred with Kilmer in the 1991 biopic The Doors, wrote on social media: “You’ll always be my Jim. See you on the other side my friend.”
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Michael Mann, who directed Kilmer in 1995’s Heat, also paid tribute in a statement, saying: “I always marvelled at the range, the brilliant variability within the powerful current of Val’s possessing and expressing character.
“After so many years of Val battling disease and maintaining his spirit, this is tremendously sad news.”
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Heat co-star Danny Trejo also called Kilmer “a great actor, a wonderful person, and a dear friend of mine” on Instagram.
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Cher, who once dated the actor, said on X that “U Were Funny, crazy, pain in the ass, GREAT FRIEND… BRILLIANT as Mark Twain, BRAVE here during ur sickness”.
Lifelong friend and director of Twixt, Francis Ford Coppola said: “Val Kilmer was the most talented actor when in his High School, and that talent only grew greater throughout his life.
“He was a wonderful person to work with and a joy to know – I will always remember him.”
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The Top Gun account on X also said it was remembering Kilmer, who starred as Iceman in both the 1986 original and 2022 sequel, and “whose indelible cinematic mark spanned genres and generations”.
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Elon Musk has called reports that he will leave his government role in the coming months “fake news”.
A senior White House official previously told NBC News, Sky’s US partner network, that Donald Trump had discussed the Tesla and X boss transitioning back to the private sector at a cabinet meeting last month.
Image: The Tesla boss has headed DOGE since 20 January. File pic: Reuters
After reports emerged of the meeting, White House press secretary Karoline Leavitt said it was “garbage” and added: “Elon Musk and President Trump have both publicly stated that Elon will depart from public service as a special government employee when his incredible work at DOGE is complete.”
Mr Musk added in response on X: “Yeah, fake news.”
NBC News reported that the official said Mr Musk would leave at the end of his 130 days as a special government employee.
That would be 30 May, but it is unclear if the billionaire businessman will indeed leave on that date.
Previously, the White House said that as a temporary organisation, the Department of Government Efficiency (DOGE) would be terminated on 4 July next year – the 250th anniversary of the US.
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It comes days after Mr Musk said some members of his DOGE team were getting death threats on a daily basis.
Mr Muskhad drawn criticism over his efforts to downsize the US federal government.
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‘Elon Musk has got to go’
In just weeks, entire agencies were dismantled, and tens of thousands of workers from the 2.3 million federal workforce have been fired or have agreed to leave their jobs.
A number of lawsuits were filed in state and federal courts over cuts recommended by DOGE.