Only hours after the Federal Open Market Committee said it would lower the target range for the federal funds rate by half a percentage point to 4.75 to 5 per cent, Butterfield Bank said it would follow the widely expected move.

Butterfield said yesterday it was reducing its base interest rates on loans and mortgages by a quarter of a percentage point (0.25 per cent).

The change in base rates applies to Bermuda dollar residential mortgages, consumer loans, corporate loans and US dollar loans.

The rate reduction on loans takes effect on September 23. The rate reduction for existing Bermuda residential mortgages is effective 90 days later.

Yesterday’s FOMC cut was the first rate reduction in four years.

Joel Duffy, fixed income portfolio manager at Anchor Investment Management in Bermuda, said the cut was very much expected.

“It was just a matter of whether it would be 25 basis points or 50 basis points,” Mr Duffy said.

Federal Reserve chairman Jerome Powell announced the cut at a press conference yesterday.

He said the American economy was strong overall and had made good progress over the past two years.

“The labour market has cooled from its formerly overheated state,” Mr Powell said. “Inflation has eased substantially from a peak of 7 per cent to an estimated 2.2 per cent, as of August. We are committed to maintaining our economy’s strength by supporting maximum employment and returning inflation to our 2 per cent goal.”

He said the FOMC has decided to reduce the degree of policy restraint by lowering their policy interest rate by a half percentage point.

“This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2 per cent,” he said.

The Fed said in a statement that in considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook and the balance of risks.

Finance website Forbes contributor Jason Schnecker wrote that a rate cut of 0.5 per cent was bigger than many experts had expected.

“It is likely to be the beginning of a trend in additional monetary policy accommodation as the Fed cuts interest rates further in the years ahead,” he wrote.