The Federal Reserve lowered its key interest rate by 0.25 percentage points on Thursday to help maintain economic growth in the U.S. The new federal funds rate range is now 4.5% to 4.75%, following a larger 0.5-point cut in September.
The Federal Open Market Committee (FOMC) stated that it believes the risks to meeting its employment and inflation goals are roughly balanced. While the economic outlook remains uncertain, the Fed acknowledged progress in reducing inflation, though it no longer emphasized the need for greater confidence that inflation is sustainably moving towards the 2% target.
The Fed also noted changes in the labor market, pointing out that while conditions have eased and the unemployment rate has risen slightly, it remains low.
Following the announcement, stock indices like the S&P 500 remained positive, while U.S. Treasury yields and the dollar showed more mixed reactions.
The rate cut came just days after Donald Trump’s re-election, with his proposed policies, such as tougher tariffs and immigration restrictions, potentially influencing inflation and long-term interest rates. Trump’s stance may lead to greater scrutiny of the Fed, especially given his previous criticisms of Fed Chair Jerome Powell.
Chair Jerome Powell is scheduled to address the press later for further comments. Although the Fed started its rate-cutting cycle with a more aggressive move, officials have indicated that future cuts will be more cautious and measured.
In the broader economic context, the U.S. economy grew at a strong 2.8% annual rate in Q3, largely driven by higher consumer spending, though concerns about job market softness have lessened. However, October saw only 12,000 jobs added, due to factors like severe weather and a major strike. Inflation, while down from previous highs, remains somewhat unpredictable, with the Fed’s preferred inflation gauge showing the largest monthly increase since April.
Markets had anticipated a 0.25 percentage point cut, with expectations for another similar-sized reduction in December. Meanwhile, Treasury yields rose ahead of the election, putting upward pressure on mortgage rates in a slowing housing market, while the S&P 500 hit new record highs following Trump’s win.