US central bankers slashed their key lending rate by a quarter of a percentage point as they seek to keep the US economy on solid footing in the aftermath of Donald Trump’s blowout election victory.
As the Federal Reserve disclosed the widely expected rate cut — its latest attempt to prop up the US job market while tamping down inflation — the central bank said it believes “the risks to achieving its employment and inflation goals are roughly in balance.”
The Fed’s Open Market Committee, however, removed a line from its previous statement saying it has “greater confidence” that inflation is moving sustainably toward its long-term target of 2%. The committee added that it believes it has “made progress” toward its inflation goal.
The Fed also adjusted its language around the job market, where labor strikes and hurricanes have recently caused disruptions to data.
“Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low,” the Fed statement said.
The Federal Reserve announced the second consecutive rate cut earlier on Thursday to the 4.50%-4.75% range amid uncertainty over Trump’s plans to slap tariffs on cheap imports and crack down on immigration.
Fed Chair Jerome Powell told a news conference after the Fed cut rates again that the US economy was outperforming global peers and was weathering geopolitical risks, and that business people were optimistic about the outlook.
“If anything, people feel next year — I’ve heard this from several people — that next year could even be stronger than this year,” Powell said.
He would not say whether the next administration’s expected policy shifts would change the economic outlook.
“We don’t guess, we don’t speculate, we don’t assume” what policies will get put into place, Powell said. “In the near term, the election will have no effects on our policy decisions.”
Officials slashed the benchmark rate by a half point in September — the first cut in four years — as it turned its focus toward the US job market.
Republicans look set to control both houses of Congress from January, giving the New York real estate mogul a seemingly free rein to implement his campaign promises.
Trump could even ask Powell to step aside once he takes office in January; the pair clashed during his 2017-2021 term when the former president demanded low interest rates, calling his own appointee to the job an “enemy.”
Asked if he would resign if the president-elect asked, Powell said “no” at the press conference following the Federal Reserve policy meeting.
The Fed chair said an attempt to oust him before his term was over is “not permitted under the law.”
The latest cut came as Fed officials appear to have been buoyed by fresh data that showed unemployment claims have remained low, while worker productivity rose by 2.2% in the third quarter of this year.
“This is the kind of result the Fed likes to see as it contemplates cutting rates,” said Carl Weinberg, chief economist for High Frequency Economics.
But the Fed may have to rethink any plans to cut rates further if Trump’s economic policies end up stoking inflation.
“You can see over time, the direction of budget deficits, tariffs can become a problem,” said Steven Blitz, chief U.S. economist at TS Lombard.
“Beyond this, the outlook has become murkier with the extent and timing of further cuts hinging on incoming data and Trump’s policy approach in 2025,” Macquarie economists David Doyle and Chinara Azizova wrote on Wednesday.
