Federal Reserve cuts its key interest rate by a quarter-point amid postelection uncertainty
Business
Fed reserves rate cut reduced its benchmark rate to about 4.6%
WASHINGTON (AP) — 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.
Asked at a news conference how Trump’s election might affect the Fed’s policymaking, Chair Jerome Powell said that “in the near term, the election will have no effects on our (interest rate) decisions.”
But Trump’s election, beyond its economic consequences, has raised the specter of meddling by the White House in the Fed’s policy decisions. Trump has argued 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 agency able to make difficult decisions about borrowing rates, free from political interference. Yet in his previous term in the White House, Trump publicly attacked Powell after the Fed raised rates to fight inflation, and he may do so again.
Asked whether he would resign if Trump asked him to, Powell, who will have a year left in his second four-year term as Fed chair when Trump takes office, replied simply, “No.”
And Powell said that in his view, Trump could not fire or demote him: It would “not be permitted under the law,” he said.
Thursday’s Fed rate cut reduced its benchmark rate to about 4.6%, down from a four-decade high of 5.3%. 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.
When its latest policy meeting ended Thursday, the Fed issued a statement noting that the “unemployment rate has moved up but remains low,” and while inflation has fallen closer to the 2% target level, it “remains somewhat elevated.”
After their rate cut in September — their first such move in more than four years — the 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. Rate cuts by the Fed typically lead over time to lower borrowing costs for consumers and businesses.
Powell declined to be pinned down Thursday on whether the Fed would proceed with an additional quarter-point rate cut in December or the four rate cuts its policymakers penciled in for 2025.
Diane Swonk, chief economist at accounting giant KPMG, said she thought Powell was reluctant to provide hints about the Fed’s next moves because of the uncertainty caused by Trump’s election victory.
“He’s not willing to go too far out ahead of his skis, given how much could change,” she said. “In an environment where you don’t know how promises on the campaign trail translate to actual policies, you don’t want to front-run it.”
