The Federal Reserve on Thursday announced its second consecutive interest rate cut, lowering the benchmark rate by 25 basis points amid economic data showing signs that inflation and the labor market are cooling.
With the 25-basis-point cut, the benchmark federal funds rate will sit at a range of 4.5% to 4.75%.
The Fed’s move follows a larger than normal cut of 50 basis points at its September meeting, which was the first rate cut since March 2020 and brought rates down from a range of 5.25% to 5.5% – which was the highest level since 2001.
The Federal Open Market Committee (FOMC), the Fed’s policymaking arm, noted that “labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains elevated.”
Policymakers noted in the announcement that they’re “attentive to the risks to both sides of its dual mandate” – which is to promote maximum employment and stable prices. All FOMC members voted in favor of the rate cut.
Fed Chair Jerome Powell said at the press conference that the “economy is strong overall and has made significant progress toward our goals over the past two years.”
“The unemployment rate is notably higher than it was a year ago, but has edged down over the past three months and remains low at 4.1%,” Powell said. “Overall, a broad set of indicators suggest that conditions in the labor market are now less tight than just before the pandemic in 2019. The labor market is not a source of significant inflationary pressures.”
He said of the Fed’s decision to cut rates by 25 basis points to a range of 4.5% to 4.75% that policymakers are aware that reducing rates too quickly could hinder progress on inflation, while moving too slowly could “unduly weaken economic activity and employment.”
“As the economy evolves, monetary policy will adjust in order to best promote our maximum employment and price stability goals. If the economy remains strong and inflation is not sustainably moving toward 2%, we can dial back policy restraint more slowly. If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can move more quickly,” Powell explained.
This is a developing story. Please check back for updates.
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