The Federal Reserve cut interest rates by a quarter percentage point, avoiding any surprises just days after the election of Donald Trump.
The central bank voted unanimously Thursday to cut its benchmark rate by 25 basis points to a new range of 4.5%-4.75%, making the decision at the conclusion of its two-day policy meeting in Washington, D.C.
The move marks the second rate cut in seven weeks, following a jumbo half percentage point reduction in September that kicked off the Fed’s first easing cycle in more than four years.
This new cut was justified, according to the Fed’s Federal Open Market Committee, as a way of supporting its dual mandate to maintain stable prices and maximize employment.
Federal Reserve Board Chairman Jerome Powell speaks during a news conference on Sept. 18. (AP Photo/Ben Curtis, File) ·ASSOCIATED PRESS
However, the central bank removed language from its policy statement that the “committee has gained greater confidence that inflation is moving sustainably towards 2%,” raising questions about the pace and number of future rate cuts.
Instead the policy statement noted that the committee “judges that the risks to achieving its employment and inflation goals are roughly in balance.”
The economic outlook, official said, is “uncertain,” and they are paying close attention to inflation and the job market.
Among other tweaks, the Fed removed the word “further” in the first paragraph of its statement when discussing the progress made on bringing down inflation, saying that inflation had simply “made progress” toward the Fed’s objective.
The Fed also tweaked language characterizing the state of the job market, noting that conditions in the job market have “eased,” and the unemployment rate has moved up but remains low.
The latest reading from the central bank’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, contained both good news and not-so-good news for the Fed as it works to get inflation down to its 2% goal.
It showed inflation rose 2.1% during the month of September, within shouting distance of the Fed’s target.
But the complicating factor was that on a “core” basis, which excludes volatile food and energy prices, PCE was 2.7% — holding the same level as August. And that’s the Fed’s preferred way to look at the measure.
Another issue for policymakers to consider was that core PCE has now held at 2.7% for three straight months — instead of dropping.
An additional complication was that the health of the job market was clouded by the latest Labor Department report that showed only 12,000 jobs were created during October. That low figure was due in part to the temporary effects of two hurricanes and a strike at jet maker Boeing.
But market observers have been grappling with whether the report still revealed a broader deterioration in the labor market absent the cumulative effect of the hurricanes and strike, especially since there were downward revisions to September gains.
Despite the mixed economic picture, the cut approved by the Fed Thursday was widely expected by market observers.
Fed chair Jerome Powell will likely face questions at his 2:30 pm ET press conference about Trump’s victory this week, and what it could mean for his tenure as chair as well as the future of central bank policy making.
Reporters will likely ask about Trump’s promises of broad tariffs and immigration deportations and what those actions could do to the economy, the deficit and inflation — and thus the path for monetary policy going forward.
Then-U.S. President Donald Trump shakes hands with his nominee for the chairman of the Federal Reserve Jerome Powell in 2017. (Photo by Drew Angerer/Getty Images) ·Drew Angerer via Getty Images
There are concerns that Trump’s policies could push up prices and wages, making the Fed’s job of getting inflation down to its 2% target more challenging.
It is not yet known what the election result means for Powell himself. With his term atop the central bank ending in May 2026, Trump will be able to choose the next face of US monetary policy. Trump first appointed Powell to his seat in 2018.
During his first term, then-President Trump attacked Powell with regularity and openly pushed for the actions he wanted, even once suggesting negative interest rates.
And he has signaled he could go further during his second term in office.
Trump on the campaign trail talked about what he viewed as his authority to fire Powell but then downplayed the notion. He said he wanted a “say” in setting interest rates but then immediately walked that comment back.
He has also offered varying levels of antagonism toward September’s jumbo rate cut, most recently saying in early October it was “too big a cut, and everyone knows that was a political maneuver.”
