## Why US Fed is going to go for a 50 bps cut? Manish Singh explains **Why did the Fed go for 50 bps cut in June 2022?** * **To combat high inflation:** The Fed's primary goal is to maintain price stability. With inflation soaring to a 40-year high, the central bank had to take aggressive action to keep inflation in check. * **To prevent a deeper economic slowdown:** While the U.S. economy is resilient, the Fed is mindful of the potential for a recession. By cutting interest rates, the Fed aims to stimulate economic activity and prevent a sharp downturn. * **To keep up with other central banks:** Major central banks around the world, such as the European Central Bank and the Bank of England, have been hiking interest rates rapidly. The Fed's decision to cut rates puts it in line with other central banks and helps to maintain international financial stability. **What impact will the 50 bps cut have?** * **Lower borrowing costs:** The rate cut will make borrowing cheaper for consumers and businesses. This could boost spending and investment, which in turn could accelerate economic growth. * **Increase in asset prices:** Lower interest rates make bonds and other fixed-income investments less attractive, which can lead to higher demand for stocks and other risk assets. This could lead to an increase in asset prices. * **Strengthening the U.S. dollar:** The rate cut could strengthen the U.S. dollar against other currencies. This could make U.S. exports more expensive and imports cheaper, which could affect U.S. trade and manufacturing. **What does the future hold for Fed's monetary policy?** * **Continued rate cuts:** Economists widely expect the Fed to continue cutting interest rates in the coming months until inflation falls to the central bank's target of 2%. * **Quantitative easing:** The Fed could also resort to quantitative easing, which involves buying government bonds to inject liquidity into the financial system. This could further lower interest rates and stimulate the economy. * **Reversal of rate cuts:** If the economy recovers quickly and inflation falls, the Fed could eventually reverse some of the rate cuts it has made. However, this is unlikely to happen in the near future.
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