US cuts interest rates despite inflation risk | Global News Avenue

The Federal Reserve cut interest rates for a third time despite concerns that the move would boost the economy and potentially reignite inflation.

The decision was as expected, setting the Fed’s key lending rate in a target range of 4.25% to 4.5%.

That share has fallen by a full percentage point since September, when the central bank began cutting borrowing costs, citing progress in stabilizing prices and hoping to stem a weakening economy.

Reports since have suggested that job creation has been more resilient than expected, while price increases continue to bubble.

The U.S. inflation rate, a measure of how fast prices are rising, was 2.7% in November, up from 2.6% a month ago.

Lower interest rates make it easier to borrow money, thereby stimulating economic activity. This can encourage business investment or expansion, as well as household spending on items such as cars. But if demand increases, prices usually follow.

Fed officials want to see inflation around 2% and say they are aware of the risks.

Its chairman, Jerome Powell, defended the rate cut on Wednesday, pointing to the cooling job market over the past two years.

At a news conference, he acknowledged the move was a “close call” and warned officials that cuts could be reduced next year.

“We are in a new phase of this process,” he said. “From now on, it is appropriate to err on the side of caution and look for progress on inflation.”

The forecast released by the bank also showed that policymakers expect inflation to remain around 2.5% next year, higher than previously expected.

They still expect the bank’s key interest rate to fall to 3.9% by the end of 2025, instead of the 3.4% forecast three months ago.

John Ryding, chief economic adviser at Brean Capital, said he thinks the Fed would be wiser to delay a rate cut at this meeting, even if it risks disrupting market expectations for a rate cut.

“The United States has made tremendous progress from the peak of inflation to now, but there is a risk that this progress will be abandoned or even partially reversed,” he said. “The economy looks strong… What’s the rush?”

The decision – formally opposed by one Fed policymaker – was the last by the Fed before President-elect Donald Trump takes office. He won election in November on a promise to lower prices and interest rates.

But analysts warn that his policies, including plans to impose broad import tariffs, could challenge those goals.

The Fed announcement comes a day before the Bank of England is due to make its latest interest rate decision in the UK. Price inflation has also moved higher recently.

The market generally expects the benchmark interest rate to remain stable at 4.75%.

Monica George Mitchell, deputy economist at the National Institute of Economic and Social Research, said the Bank of England is facing wage growth and higher prices for more popular services than in the United States.

She added that some of the government’s plans, including raising the minimum wage, would also put pressure on inflation.

“The Bank of England is trying to be cautious,” she said.

But she warned there were also inflationary risks in the United States, pointing to Trump’s tariff plans.

Reading said he believed the Bank of England – which, unlike the Fed, does not have to consider job losses as part of its mandate – was dealing more clearly with the realities of the current situation.

“(The Bank of England) is now more cautious than the Fed,” he said.

However, Powell expressed confidence in the Fed’s ability to deal with future challenges.

“We think the economy is in very good shape, we think policy is in very good shape,” he said.