The Federal Reserve cut interest rates by 25 basis points, as expected, two days after the election that returned Donald Trump to the White House.
“Recent indicators suggest that economic activity has continued to expand at a steady pace. Since earlier in the year, labor market conditions have generally eased and the unemployment rate has risen but remains low. Inflation has made progress toward the Commission’s 2% target, but remains somewhat elevated,” the Fed’s statement said.
The announcement emphasized that the US Federal Reserve seeks to achieve maximum employment and inflation of 2% over the long term. It even judges that the risks to achieving its employment and inflation targets are roughly balanced. The economic outlook is uncertain and it remains cautious of risks on both sides of its dual mandate.
“In support of its objectives, the Committee decided to lower the target range for the federal funds rate by 1/4 of a percentage point to 4-1/2 to 4-3/4 percent.”
Federal Open Market Committee statement: #FOMC
— Federal Reserve (@federalreserve) November 7, 2024
In assessing the appropriate direction of monetary policy, the Fed announced that it will continue to monitor the impact of incoming information on the economic outlook.
It even underlines that it will be ready to adjust the stance of the monetary policy as appropriate, if risks arise that could prevent the achievement of its objectives.
Unanimous decision of the Federal reserve
Markets had widely expected the move, which was heralded both at the September meeting and in subsequent remarks by policymakers. The vote was unanimous, unlike the previous move that saw the first “no” vote by a Fed governor since 2005. This time, Governor Michelle Bowman agreed with the decision.
The post-meeting statement reflected some tweaks to how the Fed views the economy. Among them was a changed view in how it assesses the effort to reduce inflation while supporting the labor market.
“The Commission judges that the risks to the achievement of its employment and inflation targets are roughly balanced,” the paper said, a change from September when it noted “greater confidence” in the process.
Fed officials justified the easing mode for policy as they see supporting employment as becoming at least as much a priority as containing inflation.
the “dot”
The September “dot” of individual officials’ expectations showed a final rate of 2.9%, which would mean another half percentage point of cuts in 2026.
The challenges for the Federal Reserve
The decision comes amid a changing political landscape.
President-elect Donald Trump scored a stunning victory in Tuesday’s election. Economists largely expect his policies to pose challenges to inflation, with his stated intentions for punitive tariffs and mass deportations of undocumented immigrants. In his first term, however, inflation has been kept low while economic growth, apart from the initial phase of the Covid pandemic, has remained strong.
But Trump has been a vocal critic of Powell and his colleagues during his first term in office, and the U.S. Banker’s term expires in early 2026.
Trump’s election
Former President Donald Trump’s victory in Tuesday’s presidential election and the prospect that his fellow Republicans will control both houses of Congress starting in January are setting in motion policy changes from import tariffs to tax cuts that could rewrite the outlook for economic growth and inflation that Fed policymakers expected to face next year.
It could take months for the proposals to evolve and work their way through Congress even under full Republican control.
For now, the new economic data continues to work in the Fed’s favor. Data released Thursday showed that initial jobless claims remained low in the latest week and worker productivity jumped 2.2 percent in the third quarter, helping to offset a 4.2 percent increase in hourly workers’ wages.
Source: ot.gr
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