The Federal Reserve’s interest rate decisions have significant ripple effects on the global economy, given the central role of the US economy and the dollar still in international trade and finance.It has been a few weeks since the Fed made its first key interest rate cut since the Covid-19 pandemic in 2020. The recent decision lowered the Federal Funds Rate to a range of 4.75-5%, down from the previous range of 5.25-5.5%, which had been in place since the summer of 2023.This move aims to support continued progress on inflation, ultimately benefiting various sectors, including businesses reliant on credit costs, as well as home buyers and sellers.When the Fed cuts rates, the dollar usually weakens. A weaker dollar obviously benefits emerging market economies by reducing the cost of servicing dollar-denominated debt, while also making US exports more competitive, potentially boosting global trade.In his recent speech to the National Association for Business Economics, Federal Reserve Chair Jerome Powell indicated that two additional rate cuts are likely in 2024.Specifically, he projected quarter-point reductions at Fed’s November and December meetings, stating that larger cuts were not necessary given the current economic conditions.The Federal Reserve’s latest Summary of Economic Projections, commonly known as the Dot Plots, suggests that the Federal Funds Rate may reach about 4.4% by year-end, implying at least two further quarter-point reductions. By the end of 2025, the rate is forecast to be around 3.4%.“The committee seeks to achieve maximum employment and an inflation rate of 2% over the longer term,” the Fed noted in a statement released alongside the rate decision.The statement continued: “The committee has gained greater confidence that inflation is moving sustainably toward the 2% target, and judges that the risks to achieving its employment and inflation goals are now more balanced. However, the economic outlook remains uncertain, and the committee remains vigilant regarding risks on both sides of its dual mandate.”In addition, the Fed slightly revised its near-term growth and inflation forecasts, now expecting GDP growth of 2% this year, a modest reduction from the 2.1% forecast in June. Growth is expected to stabilise around 2% through 2025 and 2026.However, the unemployment outlook has shifted. The Fed now projects headline unemployment to rise to 4.4% by the end of this year, a notable increase from its June estimate of 4%. Unemployment is expected to remain elevated at 4.4% and 4.3% in 2025 and 2026, respectively.“This decision reflects our growing confidence that, with appropriate adjustments to our policy stance, we can maintain strength in the labour market,” Powell told reporters during the press briefing following the rate announcement in Washington.The Federal Reserve’s interest rate revisions play a key role in shaping global economic conditions. Rate hikes potentially lead to higher borrowing costs, a stronger US dollar, capital outflows from emerging markets, and a slowdown in global growth.On the other hand, rate cuts tend to ease financial conditions globally, stimulate investment, boost capital flows to emerging markets, and increase commodity prices.