Agencies
The Federal Reserve cut its key interest rate Thursday by a quarter-point in response to the steady decline in the once-high inflation that had angered Americans and helped drive Donald Trump’s presidential election victory this week.
The rate cut follows a larger half-point reduction in September, and it reflects the Fed’s renewed focus on supporting the job market as well as fighting inflation, which now barely exceeds the central bank’s 2% target.
Thursday’s move reduces the Fed’s benchmark rate to about 4.6%, down from a four-decade high of 5.3% before September’s meeting. The Fed had kept its rate that high for more than a year to fight the worst inflation streak in four decades. Annual inflation has since fallen from a 9.1% peak in mid-2022 to a 3 1/2-year low of 2.4% in September.
In a statement after its latest meeting ended, the Fed said the "unemployment rate has moved up but remains low,” while inflation has fallen closer to the central bank’s target but "remains somewhat elevated.”
After their rate cut in Septembertheir first such move in more than four years — the Fed’s policymakers had projected that they would make further quarter-point cuts in November and December and four more next year.
But with the economy now mostly solid and Wall Street anticipating faster growth, larger budget deficits and higher inflation under a Trump presidency, further rate cuts may have become less likely.
Trump’s election has also raised the specter of meddling by the White House in the Fed’s policy decisions, with Trump having proclaimed that as president he should have a voice in the central bank’s interest rate decisions.
The Fed has long guarded its role as an independent institution able to make difficult decisions about borrowing rates, free from political interference.
Yet during his previous term in the White House, Trump publicly attacked Chair Jerome Powell after the Fed raised rates to fight inflation, and he may do so again.
The economy is clouding the picture by flashing conflicting signals, with growth solid but hiring weakening. Consumer spending, though, has been healthy, fueling concerns that there is no need for the Fed to reduce borrowing costs and that doing so might overstimulate the economy and even re-accelerate inflation.
Financial markets are throwing yet another curve at the Fed: Investors have sharply pushed up Treasury yields since the central bank cut rates in September. The result has been higher borrowing costs throughout the economy, thereby diminishing the benefit to consumers of the Fed’s half-point cut in its benchmark rate, which it announced after its September meeting.
Broader interest rates have risen because investors are anticipating higher inflation, larger federal budget deficits, and faster economic growth under a President-elect Trump.
Trump’s plan to impose at least a 10% tariff on all imports, as well as significantly higher taxes on Chinese goods, and to carry out a mass deportation of undocumented immigrants would almost certainly boost inflation. This would make it less likely that the Fed would continue cutting its key rate.