The Fed will have to navigate a changing economic landscape with the election of Donald Trump as the next US president.
The United States Federal Reserve has cut interest rates by a quarter of a percentage point as policymakers took note of a job market that has “generally eased” while inflation continues to move towards the central bank’s 2 percent target.
“Economic activity has continued to expand at a solid pace,” the central bank’s rate-setting Federal Open Market Committee said on Thursday. The statement followed a two-day policy meeting in which officials lowered the benchmark overnight interest rate to the 4.5 percent to 4.75 percent range, as widely expected. The decision was unanimous.
But where the Fed’s previous policy statement noted slowing monthly job gains, the new one referred to the labour market more broadly.
Even while the unemployment rate remains low, “labour market conditions have generally eased”, the statement said.
Risks to the job market and inflation were “roughly in balance”, the Fed said, repeating language from the statement released after its September meeting.
The new statement also slightly altered the reference to inflation, saying that price pressures had “made progress” towards the Fed’s objective, rather than the prior language that it had “made further progress”.
The personal consumption expenditures price index excluding food and energy items, a key inflation gauge, has changed little in the last three months, running at a roughly 2.6 percent annual rate as of September.
“This further recalibration of our policy stance will help maintain the strength of the economy and the labour market, and will continue to enable further progress on inflation as we move toward a more neutral stance over time,” Fed Chair Jerome Powell said in a news conference following the central bank’s decision. “We think that the economy, and we think our policies, are both in a very good place, a very good place.”
At the same time, Powell gave little guidance on how fast and far the Fed will cut rates from here. He noted that while the “baseline” projections from September for moving the policy rate gradually towards the neutral level, where economic activity is neither stimulated nor restrained, are still valid, the exact pace of cuts and ultimate destination will depend on incoming data.
“We think that the right way to find neutral, if you will, is carefully, patiently,” he said.
No plans to quit
The Fed statement will be interpreted in light of Republican President-elect Donald Trump’s return to power in January.
Trump, who defeated Democratic Vice President Kamala Harris in Tuesday’s US presidential election, campaigned on promises ranging from steep tariffs on imports to a crackdown on immigration. These policies could have a broad and unpredictable impact on the economic landscape the Fed will navigate in the coming months as officials try to keep inflation contained and close to the central bank’s target.
In his first term, Trump appointed Powell to lead the Fed. The two later clashed over rates policy in 2018 and 2019.
Powell said on Thursday that he would not step down if ordered to by Trump.
Asked if he would resign if asked, Powell said “no” at the news conference following the Federal Reserve policy meeting.
Powell had fractious relations with Trump in his first term, and there have been broad expectations the returning president might try to remove Powell. The Fed chair said an attempt to oust him before his term was over on January 31, 2028, is “not permitted under the law”.
Investors following Trump’s election victory have already trimmed their own bets that the central bank will be able to reduce interest rates as much as expected.
