The Federal Reserve has lowered the benchmark interest rate by 25 basis points to a range of 4.50% to 4.75%. This marks the second consecutive cut, aligning with market expectations following a previous reduction of 50 basis points. The Fed's decision is part of its ongoing efforts to support full employment and stabilize inflation around its 2% target.
In their statement, Fed officials highlighted that economic activity continues to expand at a moderate pace despite some easing in labor market conditions since the beginning of the year. The unemployment rate, while slightly up, remains low. Inflation is approaching the central bank's target but still remains marginally above.
The Federal Reserve plans to continue reducing its holdings of Treasury securities and agency debt. They remain committed to adjusting monetary policy as needed, based on a careful evaluation of incoming data and potential risks to economic growth and inflation.
In a unified vote, all Fed officials supported the rate cut, which contrasts with previous meetings where dissent occurred. Notably, the Fed's language around inflation confidence has been toned down, indicating slightly less confidence in steady progress toward their inflation goals.
The Fed's decision comes after Donald Trump's election as President, whose proposed policies could exert upward pressure on prices and long-term rates, potentially influencing future monetary policy adjustments. The Fed remains focused on economic data rather than speculative political outcomes.
Fed Chair Jerome Powell reiterated the institution's commitment to price stability and employment in his press conference. He refrained from commenting on potential economic policy changes under the new administration, emphasizing instead the importance of data-driven decisions.
Market analysts anticipate further rate cuts if economic conditions warrant, though the Fed has signaled a cautious approach moving forward. Market reactions during Powell's comments were muted, with U.S. stocks maintaining gains and some indices showing significant increases.
Importantly, Powell stated that the President lacks the legal authority to remove the Fed Chair, affirming his determination to serve his full term despite any political pressures.
