Analysts had widely expected the Fed to reduce rates on Wednesday, but were uncertain if it would cut by 25 basis points or 50.
A smaller cut would have been a more conventional step, while the larger move does more to stimulate demand, but also carries a greater risk of reigniting inflation.
“I was a little surprised it was 50 (basis points) and not 25, but I think the chairman did a nice job of explaining,” former Boston Fed president Eric Rosengren told AFP.
The Fed’s rate-setting committee most likely went for the larger cut in response to recent weaker-than-expected jobs data and the “very positive news” on inflation, added Rosengren, a visiting scholar at MIT.
“I don’t think it’s panic. I think it’s more a strategic decision by the Fed,” Citi global chief economist Nathan Sheets told AFP, adding that the next steps were “not so clear”.
In updated forecasts published alongside the Fed’s rate decision, policymakers’ median projections pointed to an unemployment rate of 4.4 per cent in the fourth quarter of this year, up from 4.0 per cent in the last update in June.
They also penciled in an annual headline inflation rate of 2.3 per cent, slightly lower than in June.
Futures traders see a roughly 65-per cent chance that the Fed will cut by at least another 75 basis points this year, according to CME Group data.
