The Federal Reserve approved its second consecutive interest rate cut on Thursday. The pace of interest rate cuts was slower than before, but it continued to work hard to adjust the scale of monetary policy.
The Federal Open Market Committee cut its benchmark overnight borrowing rate by a quarter of a percentage point, or 25 basis points, to a target range of 4.50%-4.75%, following a sharp half-percentage-point cut in September. The rate determines what banks charge for overnight loans between banks, but generally affects consumer debt instruments such as mortgages, credit cards and car loans.
The market widely expected the movethis was conveyed at the September meeting and in follow-up speeches by policymakers since then. The vote was unanimous, unlike the last time Fed governors voted against it for the first time since 2005. This time, Fed Governor Michelle Bowman agreed.
this Statement after the meeting Reflecting some adjustments to the Fed’s view on the economy. These include changes in views on how to assess efforts to lower inflation while supporting the labor market.
The document states that “the Committee views risks to achieving its employment and inflation objectives as broadly balanced,” a change related to the “increased confidence” noted in September.
Fed officials have justified an accommodative policy model by arguing that supporting employment is at least as important as curbing inflation.
The statement slightly downgraded the labor market rating, saying “the situation has generally eased and the unemployment rate has increased, but it is still at a low level.” The committee again said the economy “continues to expand at a solid pace.”
Officials have largely described the policy changes as an attempt to bring the interest rate structure in line with an economy with inflation falling back to the central bank’s 2% target, while the labor market has shown some signs of weakness. chairman of the fed Jerome Powell Talk of “recalibrating” policy so that it no longer needs to be as stringent as it was when the central bank focused almost exclusively on containing inflation.
Powell will answer questions About his decision at a press conference at 2:30 p.m. The November meeting was postponed by one day because of the U.S. presidential election.
As the macro economy continues to grow at a solid pace and inflation remains a suffocating problem for American households, there is uncertainty over the extent to which the Fed will need to cut interest rates.
GDP grew by 2.8% In the third quarter, it was less than expected and slightly lower than the level in the second quarter, but still higher than the US historical trend of about 1.8%-2%. Preliminary tracking for the fourth quarter points to growth of about 2.4%, according to the Atlanta Fed.
Overall, the labor market is performing well. However, Nonfarm employment increased by only 12,000 October, though the weakness was partly due to storms in the Southeast and worker strikes.
The decision comes against a changing political backdrop.
President-elect Donald Trump A stunning victory in Tuesday’s election. Economists widely expect his policies to pose an inflation challenge as he explicitly targets punitive tariffs and mass deportations of undocumented immigrants. However, during his first term, inflation remained low and economic growth remained strong beyond the initial stages of the COVID-19 pandemic.
Still, Trump was fiercely critical of Powell and his colleagues during his first term in office, which is set to expire in early 2026. Central bankers studiously avoid commenting on political issues, but Trump news may become an open question for future policy processes.
An acceleration in economic activity under Trump could convince the Fed to cut interest rates less often, depending on how inflation responds.
Questions are beginning to emerge about what the Fed’s “end point,” or when it will decide it has cut enough rates and that its benchmark rate is neither boosting nor suppressing economic growth. Traders expect the Fed may approve another quarter-point rate cut in December before pausing in January to assess the impact of tightening measures. CME Group’s FedWatch Tool.
The Federal Open Market Committee (FOMC) said in September that members expected an additional half-percentage point rate cut by the end of this year, followed by a full percentage point cut in 2025. A September “dot plot” of individual officials’ expectations showed a final rate of 2.9%, implying another half-percentage point cut in 2026.
Even when the Fed cuts interest rates, markets don’t react in the same way. Treasury yields and mortgage rates have both risen sharply since the September rate cut. this 30 year mortgageFor example, it rose about 0.7 percentage points to 6.8%, according to Freddie Mac. this 10-Year Treasury Bond Yield rose almost as much.
The Fed is seeking to achieve a “soft landing” for the economy and reduce inflation without triggering a recession. Federal Reserve’s Preferred inflation indicator The most recent 12-month growth rate was 2.1%, although so-called core (which excludes food and energy and is generally considered a better long-term indicator) was 2.7%.
