The Federal Reserve cut interest rates by a quarter percentage point, avoiding any surprises just days after Donald Trump was elected president.
The central bank voted unanimously Thursday to cut its benchmark rate by 25 basis points to a new range of 4.5%-4.75%. The decision was made at the conclusion of its two-day policy meeting in Washington, D.C.
The move marks the second rate cut in seven weeks, following a jumbo half percentage point reduction in September that kicked off the Fed’s first easing cycle in more than four years.
This new cut was justified, according to the Fed’s Federal Open Market Committee, as a way of supporting its dual mandate to maintain stable prices and maximize employment.
Federal Reserve Board Chairman Jerome Powell speaks during a news conference on Sept. 18. (AP Photo/Ben Curtis, File) ·ASSOCIATED PRESS
But notably, the central bank removed language from its September statement that it had "gained greater confidence" that inflation was moving toward its 2% target.
Among other tweaks, the Fed removed the word "further" in the first paragraph of its statement when discussing the progress made on bringing down inflation, saying that inflation had simply "made progress" toward the Fed's objective.
Fed Chair Jerome Powell told reporters Thursday that those language changes were not designed to communicate that the Fed could pause its rate-cutting cycle in December or was newly concerned about inflation.
Instead the Fed decided to remove "gained further confidence" because that confidence had been gained ahead of the Fed’s first cut in September.
He also declined to say what the Fed might do in December at its last meeting of the year and also made it clear that the Fed’s path down to a more neutral rate stance has not changed since the first cut in September.
"We will just have to see where the data leads us," he said.
The latest reading from the central bank’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, contained both good news and not-so-good news for the Fed as it works to get inflation down to its 2% goal.
It showed inflation rose 2.1% during the month of September, within shouting distance of the Fed’s target.
But the complicating factor was that on a "core" basis, which excludes volatile food and energy prices, PCE was 2.7% — holding at the same level as August. And that’s the Fed’s preferred way to look at the measure.
Another issue for policymakers to consider was that core PCE has now held at 2.7% for three straight months instead of dropping.
An additional complication was that the health of the job market was clouded by the latest Labor Department report that showed only 12,000 jobs were created during October. That low figure was due in part to the temporary effects of two hurricanes and a strike at jet maker Boeing (BA).
But market observers have been grappling with whether the report still revealed a broader deterioration in the labor market absent the cumulative effect of the hurricanes and strike, especially since there were downward revisions to September gains.
Despite the mixed economic picture, the cut approved by the Fed Thursday was widely expected by market observers.
At his press conference, Fed Chair Powell faced some questions about Trump’s victory this week and what it could mean for his tenure as chair as well as the future of central bank policymaking.
He said if Trump were to ask him to leave, he wouldn't go, and that such a move isn't permitted by law.
Reporters also asked about Trump’s promises of broad tariffs and immigration deportations as well as what those actions could do to the economy, the deficit, and inflation — and thus the path for monetary policy going forward.
Powell declined to discuss what the potential policies of the next administration might do to economic conditions, except to say the Fed would evaluate those policies when and if they became law.
Then-U.S. President Donald Trump shakes hands with his nominee for the chairman of the Federal Reserve Jerome Powell in 2017. (Photo by Drew Angerer/Getty Images) ·Drew Angerer via Getty Images
There are concerns that Trump's policies could push up prices and wages, making the Fed's job of getting inflation down to its 2% target more challenging.
It is not yet known what the election result means for Powell in the long run. Powell's term atop the central bank ends in May 2026, and Trump will be able to choose the next face of US monetary policy. Trump first appointed Powell to his seat in 2018.
During his first term, then-President Trump attacked Powell with regularity and openly pushed for the actions he wanted, even once suggesting negative interest rates.
And he has signaled he could go further during his second term in office.
On the campaign trail, Trump talked about what he viewed as his authority to fire Powell but then downplayed the notion. He said he wanted a "say" in setting interest rates but then immediately walked that comment back.
He has also offered varying levels of antagonism toward September's jumbo rate cut, most recently saying in early October it was "too big a cut, and everyone knows that was a political maneuver."
