Fed interest rate cut; Wall Street edges up

US stock indexes have edged higher as the Fed unveiled a 50 basis point rate cut, a move that’s expected to kick off a series of cuts to interest rates meant to prevent a recession.

The S&P 500 was 0.1 per cent higher in afternoon trading and sitting 0.5 per cent below its all-time high set in July. The Dow Jones was up 21.5 points, or 0.1 per cent, and near its record set on Monday. The Nasdaq composite rose 0.2 per cent. The Australian sharemarket is set to dip, with futures at 5.06am AEST pointing to a slide of 2 points at the open.

Markets will be glued to the words of chairman Jerome Powell, who will speak at 4.30am AEST.

The Federal Reserve cut its benchmark interest rate by an unusually large half-point, a dramatic shift after more than two years of high rates helped tame inflation but that also made borrowing painfully expensive for American consumers.

The rate cut, the Fed’s first in more than four years, reflects its new focus on bolstering the job market, which has shown clear signs of slowing. Coming just weeks before the presidential election, the Fed’s move also has the potential to scramble the economic landscape just as Americans prepare to vote.

The Australian dollar jumped. It was 0.8 per cent stronger at 68.12 US cents at 4.20am AEST.

The central bank’s action lowered its key rate to roughly 4.8 per cent, down from a two-decade high of 5.3 per cent, where it had stood for 14 months as it struggled to curb the worst inflation streak in four decades. Inflation has tumbled from a peak of 9.1 per cent in mid-2022 to a three-year low of 2.5 per cent in August, not far above the Fed’s 2 per cent target.

The Fed’s policymakers also sign that they expect to cut their key rate by an additional half-point in their final two meetings this year, in November and December. And they envision four more rate cuts in 2025 and two in 2026.