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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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.
Donald Trump has said he is considering “taking away” the US citizenship of actress and comedian Rosie O’Donnell, despite a Supreme Court ruling that expressly prohibits a government from doing so.
In a post on Truth Social on Saturday, the US president said: “Because of the fact that Rosie O’Donnell is not in the best interests of our Great Country, I am giving serious consideration to taking away her Citizenship.”
He also labelled O’Donnell, who has moved to Ireland, as a “threat to humanity” and said she should “remain in the wonderful country of Ireland, if they want her”.
O’Donnell responded on Instagram by posting a photograph of Mr Trump with Jeffrey Epstein.
“You are everything that is wrong with America and I’m everything you hate about what’s still right with it,” she wrote in the caption.
“I’m not yours to silence. I never was.”
Rosie O’Donnell moved to Ireland after Donald Trump secured a second term. Pic: AP
O’Donnell moved to Ireland with her 12-year-old son in January after Mr Trump had secured a second term.
She has said she’s in the process of obtaining Irish citizenship based on family lineage and that she would only return to the US “when it is safe for all citizens to have equal rights there in America”.
O’Donnell and the US president have criticised each other publicly for years, in an often-bitter back-and-forth that predates Mr Trump’s move into politics.
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This is just the latest threat by the president to revoke the citizenship of someone he has disagreed with, most recently his former ally Elon Musk.
But the two situations are different as while Musk was born in South Africa, O’Donnell was born in the US and has a constitutional right to American citizenship.
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Amanda Frost, a law professor at the University of Virginia School of Law, said the Supreme Court ruled in a 1967 case that the fourteenth amendment of the constitution prevents the government from taking away citizenship.
“The president has no authority to take away the citizenship of a native-born US citizen,” he added.
“In short, we are nation founded on the principle that the people choose the government; the government cannot choose the people.”
A farmer who fell from a greenhouse roof during an anti-immigrant raid at a licensed cannabis facility in California this week has died of his injuries.
Jaime Alanis, 57, is the first person to die as a result of Donald Trump’s Immigration Compliance and Enforcement (ICE) raids.
His niece, Yesenia Duran, posted on the fundraising site GoFundMe to say her uncle was his family’s only provider and he had been sending his earnings back to his wife and daughter in Mexico.
The United Food Workers said Mr Alanis had worked on the farm for 10 years.
“These violent and cruel federal actions terrorise American communities, disrupt the American food supply chain, threaten lives and separate families,” the union said in a recent statement on X.
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The Department of Homeland Security (DHS) said it executed criminal search warrants at Glass House Farms facilities on Thursday.
Mr Alanis called family to say he was hiding and possibly fleeing agents before he fell around 30ft (9m) from the roof and broke his neck, according to information from family, hospital and government sources.
Agents arrested 200 people suspected of being in the country illegally and identified at least 10 immigrant children on the sites, the DHS said in a statement.
Mr Alanis was not among them, the agency said.
“This man was not in and has not been in CBP (Customs and Border Protection) or ICE custody,” DHS assistant secretary for public affairs Tricia McLaughlin said.
“Although he was not being pursued by law enforcement, this individual climbed up to the roof of a greenhouse and fell 30ft. CBP immediately called a medivac to the scene to get him care as quickly as possible.”
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Four US citizens were arrested during the incident for allegedly “assaulting or resisting officers”, the DHS said, and authorities were offering a $50,000 reward for information leading to the arrest of a person suspected of firing a gun at federal agents.
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In a statement, Glass House, a licensed Cannabis grower, said immigration agents had valid warrants. It said workers were detained and it is helping provide them with legal representation.
“Glass House has never knowingly violated applicable hiring practices and does not and has never employed minors,” it added.
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