The Federal Reserve has lowered its benchmark interest rate by 25 basis points to a range of 4.50% to 4.75%, marking the second consecutive rate cut. The previous reduction in September was by 50 basis points. This decision aligns with market expectations. Interestingly, the statement omits previous language suggesting confidence in inflation control, hinting at a possible pause in rate cuts in December.
Federal Reserve Chairman Jerome Powell stated that inflation expectations remain stable and indicated a gradual shift toward a neutral policy stance. As rates approach a neutral level, there might be a need to slow down the rate cut pace. The Fed is prepared to evaluate the rate adjustment speed and targets, making decisions on a meeting-by-meeting basis.
Changes in the statement following the policy meeting highlighted adjustments in wording concerning inflation and the labor market. The decision to cut rates was unanimous, with the policy wording remaining largely the same, emphasizing continuous monitoring of dual mandate risks while removing wording that expressed confidence in inflation moving sustainably toward the target.
The Fed noted that the labor market has broadly eased, and inflation continues to approach the central bank's 2% target. The personal consumption expenditures price index, excluding food and energy, remained relatively stable over the past three months, with an annual growth rate of about 2.6% up to September.
Elections are not expected to affect the policy in the short term, with Powell refraining from commenting on potential fiscal policy impacts. He emphasized that any government or congressional policy could have significant implications, which will be considered alongside other factors.
Overall economic performance is strong, with inflation showing significant progress. Powell expressed optimism about the economic outlook and confidence in inflation returning to the 2% target. He noted that the Fed is not in a rush to reach neutral rates and is cautious about finding the right approach.
During Powell's press conference, he reiterated the dual risks of cutting rates too fast or too slow, suggesting that the rate cut pace is less significant compared to the trend toward a neutral stance. The market reacted with the dollar initially rising and then falling, while gold and silver showed the opposite trend. U.S. stocks remained stable with minor gains, and the 2-year Treasury yield saw fluctuations. Notably, the major stock indices reached new intraday highs, with the Nasdaq closing above 19,000 points for the first time and the S&P 500 nearing the 6,000 mark. The Fed's rate cut aligns with expectations, with ongoing market focus on potential impacts following Trump's election win.
