The US Federal Reserve (FED) cut its federal funds rate by 50bps, from 5.5% to 5%, after over 2 years of tightening conditions to fight the highest US inflation recorded since the 1980s.

This hiking cycle’s purpose was to cool down the US economy and fight inflation. The first rate hike was announced in March 2022, exactly 1 year after FED chairman Jerome Powell claimed that “These one-time increases in prices are likely to have only transient effects on inflation”. US consumer price index (CPI) peaked at 9.1% year-on-year in June 2022 and has grown 23% since pre-COVID (an acceleration not seen since the 1970s). Chart 1 shows that US citizens suffer today from consumer prices that are 13% higher than projections of the FED’s 2% inflation target since pre-COVID levels, the origin of the shock.