• The US Federal Reserve (Fed) has lowered its interest rate target for the first time in more than four years.
  • The Fed’s 0.5 percentage point rate cut tells us that policymakers are confident that the rate of inflation has largely been contained.
  • It also signals a shift in the Fed’s focus - from price stability to its other mandate, maximum employment.


The US Federal Reserve’s (Fed’s) target for short-term interest rates essentially sets the minimum level of borrowing costs in the United States. On 18 September, the Fed reduced its interest rate target for the first time in more than four years. The 0.5 percentage point reduction made the Fed’s new target a range of 4.75–5.00%.

Joe Davis, Vanguard global chief economist, and Chris Alwine, head of fixed income credit, explore the implications of the US central bank’s policy shift. 

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