Bumper US interest rate cut aims to boost flagging economy
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 0.5 percentage points to 4.75% to 5%.
Unlike the UK, the US interest rate is a range to guide lenders rather than a single percentage.
Read more: What next for interest rates?
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.
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.
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.
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.
The King has written to former US president Joe Biden after he was diagnosed with an aggressive form of prostate cancer, Buckingham Palace said
The monarch, who is undergoing his own treatment for an undisclosed cancer, hosted the 82-year-old for tea and talks at Windsor in July 2023.
Mr Biden was diagnosed on Friday, with tests revealing the cancer had spread to his bones.
The former president posted an image of himself and his wife Jill on X on Monday and wrote: “Cancer touches us all. Like so many of you, Jill and I have learned that we are strongest in the broken places. Thank you for lifting us up with love and support.”
The King and Joe Biden at Windsor Castle in July 2023. Pic: Reuters
The King’s letter comes after British Prime Minister Sir Keir Starmer said he was “very sorry to hear President Biden has prostate cancer”.
“All the very best to Joe, his wife Jill and their family, and wishing the President swift and successful treatment,” he added.
Meanwhile US President Donald Trump said he was “saddened” by the news, adding: “We extend our warmest and best wishes to Jill and the family, and we wish Joe a fast and successful recovery.”
Former US president Barack Obama said: “Michelle and I are thinking of the entire Biden family.
“Nobody has done more to find breakthrough treatments for cancer in all its forms than Joe, and I am certain he will fight this challenge with his trademark resolve and grace. We pray for a fast and full recovery.”
Read more: Biden diagnosed with ‘aggressive’ form of prostate cancer
Barack Obama (right) with Joe Biden at a campaign event in 2022. File pic: Reuters
After a poor debate performance against Mr Trump and amid escalating concerns around his age and fitness to serve, Mr Biden withdrew from the 2024 presidential election race and endorsed his vice president Kamala Harris.
Ms Harris wrote on X after his diagnosis: “We are keeping him, Dr. Biden, and their entire family in our hearts and prayers during this time.
“Joe is a fighter – and I know he will face this challenge with the same strength, resilience, and optimism that have always defined his life and leadership. We are hopeful for a full and speedy recovery.”
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Mr Biden’s diagnosis: What we know
Former US president Bill Clinton wrote on social media: “My friend Joe Biden’s always been a fighter. Hillary and I are rooting for him and are keeping him, Jill, and the entire family in our thoughts.”
Hillary Clinton, who unsuccessfully ran for president in 2016, said she was “thinking of the Bidens as they take on cancer, a disease they’ve done so much to try to spare other families from”.
Speaker of the US House of Representatives Mike Johnson said it was “sad news” and his family “will be joining the countless others who are praying” for Mr Biden.
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Former House speaker Nancy Pelosi described Mr Biden as a “great American patriot” and said she was “praying for him to have strength and a swift recovery”.
Mr Trump’s secretary of state, Marco Rubio, wrote on social media that he and his wife were “united in prayer for the Biden Family during this difficult time”.
Politicians have sent messages of support to Joe Biden, who has been diagnosed with prostate cancer.
The 82-year-old, who is the oldest person to ever serve as US president, was described as a “fighter” with people wishing him a “fast and full recovery”.
US President Donald Trump said he was “saddened” by the news, adding: “We extend our warmest and best wishes to Jill and the family, and we wish Joe a fast and successful recovery.”
Former US president Barack Obama said: “Michelle and I are thinking of the entire Biden family.
“Nobody has done more to find breakthrough treatments for cancer in all its forms than Joe, and I am certain he will fight this challenge with his trademark resolve and grace. We pray for a fast and full recovery.”
Read more: Biden diagnosed with ‘aggressive’ form of prostate cancer
Barack Obama (right) with Joe Biden at a campaign event in 2022. File pic: Reuters
British Prime Minister Sir Keir Starmer said he was “very sorry to hear President Biden has prostate cancer”.
“All the very best to Joe, his wife Jill and their family, and wishing the President swift and successful treatment,” he added.
After a poor debate performance against Mr Trump and amid escalating concerns for his health, Mr Biden withdrew from the 2024 election and endorsed his vice president Kamala Harris.
Ms Harris wrote on X: “We are keeping him, Dr. Biden, and their entire family in our hearts and prayers during this time.
“Joe is a fighter – and I know he will face this challenge with the same strength, resilience, and optimism that have always defined his life and leadership. We are hopeful for a full and speedy recovery.”
Please use Chrome browser for a more accessible video player
Mr Biden’s diagnosis: What we know
Former US president Bill Clinton wrote on social media: “My friend Joe Biden’s always been a fighter. Hillary and I are rooting for him and are keeping him, Jill, and the entire family in our thoughts.”
Hillary Clinton, who unsuccessfully ran for president in 2016, said she was “thinking of the Bidens as they take on cancer, a disease they’ve done so much to try to spare other families from”.
Speaker of the US House Of Representatives Mike Johnson said it was “sad news” and his family “will be joining the countless others who are praying” for Mr Biden.
Read more from Sky News:
UK and EU sign reset deal – live updates
Gary Lineker to leave BBC next week
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
Former House speaker Nancy Pelosi described Mr Biden as a “great American patriot” and said she was “praying for him to have strength and a swift recovery”.
Mr Trump’s secretary of state, Marco Rubio, wrote on social media he and his wife were “united in prayer for the Biden Family during this difficult time”.
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