Fed trims rate 25 bps and notes labour market easing

Washington — The Federal Reserve cut interest rates by 25 basis points (bps) on Thursday as policymakers took note of a job market that has “generally eased” while inflation continues to move towards the US central bank’s 2% target.

“Economic activity has continued to expand at a solid pace,” the Fed’s rate-setting federal open market committee said at the end of a two-day policy meeting in which officials lowered the benchmark overnight interest rate to the 4.50%-4.75% 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, “labor 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 gauge of inflation, has changed little in the last three months, running at a roughly 2.6% annual rate as of September.

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 presidential election, campaigned on promises ranging from steep tariffs on imports to a crackdown on immigration that could have a broad and unpredictable impact on the economic landscape the Fed will navigate in coming months as officials try to keep inflation contained and close to the central bank’s target.

Fed chair Jerome Powell said in comments after the announcement on Thursday that the US economy was performing remarkably well with strong growth, a strong labour market and slowing inflation, and the outlook from business people was that the economy could perform even better in 2025.

Powell said that the US economy was outperforming global peers and was weathering geopolitical risks.

“If anything, people feel next year — I’ve heard this from several people — that next year could even be stronger than this year,” he said. 

No decision had been made on what sort of policy action the central bank would take in December, he said. “We are prepared to adjust our assessment of the appropriate pace and destination” for monetary policy. 

Powell also said he would not step down if ordered to by Trump. Asked if he would resign if asked, Powell said “no” at the press conference.

He had fractious relations with Trump in his first term, and there have been broad expectations the returning president might try to remove him. The Fed chair said an attempt to oust him before his term was over was “not permitted under the law”.

Powell was appointed Trump in his first term to lead the Fed and then clashed with the then-president over rates policy in 2018 and 2019.

Investors following Trump’s election victory have already trimmed their own bets that the central bank would be able to reduce interest rates as much as expected.

Update: November 7 2024
This story has been updated with comment from Fed chair Jerome Powell. 

Reuters