For the first time in 4 years, the Fed cuts interest rates, and another monetary authority quickly follows.

Early morning of September 19 (Vietnam time), the US Federal Reserve (Fed) decided to cut interest rates by 0.5 percentage points, starting a cycle of easing monetary policy.

US Federal Reserve. (Source: AP)

This is the Fed's first rate cut since 2020.

In a statement after its September 18 policy meeting, the Fed said it had decided to cut interest rates to a range of 4.75% - 5.00% based on recent inflation developments.

Fed policymakers said they had increased confidence that inflation was on a steady path toward the 2% target.

The bank also said it would stand ready to adjust the stance of monetary policy if risks emerged that could hamper the achievement of its inflation and employment targets.

Fed policymakers also signaled that they could cut rates by another half a percentage point later this year. The Fed then plans to cut rates four times in 2025 and two more times in 2026.

The Fed also raised its forecast for the US unemployment rate by the end of 2024 to 4.4%, from 4% in June 2024.

According to experts, the Fed's sharp interest rate cut shows the agency's growing concern about the US labor market.

Lower interest rates will reduce borrowing costs, supporting businesses and households, while average wage growth is now outpacing price increases as inflation has cooled significantly.

US inflation has fallen to 2.5% in August 2024 from a peak of 9.1% in mid-2022, while the unemployment rate has recently risen to 4.2%.

* Immediately after the Fed's action, a few hours later, in Hong Kong (China), on September 19, the Hong Kong Monetary Authority (HKMA) also cut the base interest rate for the first time in 4 years. HKMA decided to cut the base interest rate by 0.5 percentage points to 5.25%.

The HKMA is scheduled to hold a press conference on the interest rate move this morning (September 19). A rate cut cycle would benefit struggling businesses and mortgage borrowers in Hong Kong.

Geopolitical tensions, high interest rates and a strong local currency have prompted many Hong Kongers to travel to mainland China to shop and eat, forcing some Hong Kong restaurants and stores to close.

In the second quarter of 2024, Hong Kong's gross domestic product (GDP) increased by 3.3% year-on-year (2.8% in the first quarter).

The HKMA has "followed" the Fed's monetary policy since 1983 under a linked exchange rate system - maintaining a fixed exchange rate of the Hong Kong dollar against the US dollar.

Hong Kong raised its base rate five times from September 2022 to July 2023, to the highest level since 2007.

Interest rates at BOCHK, HSBC and subsidiary Hang Seng Bank were set at 5.875%;

Interest rates at Standard Chartered, Bank of East Asia, Citigroup, CCB Asia and other lenders are 6.125%.

Source: https://baoquocte.vn/lan-dau-tien-sau-4-nam-fed-ha-lai-suat-mot-co-quan-tien-te-nhanh-chong-theo-chan-286824.html