The U.S. Federal Reserve lowered its key interest rate by a quarter-point on Thursday, continuing its efforts to manage inflation while supporting employment. The move brings the Fed’s benchmark rate to 4.6%, down from a four-decade high of 5.3% as inflation has eased to 2.4%, marking a significant decline from its 9.1% peak in mid-2022.
This rate cut follows a half-point reduction in September and underscores the Fed’s dual focus on stabilizing inflation and maintaining employment levels. The latest adjustment reflects ongoing efforts to balance economic growth with inflation control, as the central bank aims to bring inflation closer to its 2% target.
During a news conference, Fed Chair Jerome Powell was asked about the potential impact of Donald Trump’s presidential victory on the Fed’s future rate decisions. Powell responded that the election would have no immediate effect on the central bank’s policy. He also reiterated the Fed’s independence, noting that Trump would not have the legal authority to dismiss or demote him.
While Powell’s response was clear, Trump’s victory raises concerns about possible interference in Fed decisions. Trump has previously expressed a desire to influence the Fed’s rate-setting process and criticized Powell’s decisions during his prior presidency. In particular, Trump objected to the Fed’s interest rate hikes aimed at controlling inflation, even as the economy showed signs of overheating.
Powell’s current term runs through 2025, and he affirmed that he would not step down at Trump’s request. “It would not be permitted under the law,” Powell said, emphasizing the Fed’s independence in monetary policy.
In its latest policy statement, the Fed acknowledged that while inflation has come closer to the 2% target, it “remains somewhat elevated.” The central bank also noted that while the unemployment rate has increased slightly, it remains low by historical standards. The Fed had previously projected more quarter-point rate cuts for the remainder of 2024, but with the economy showing resilience and Wall Street forecasting stronger growth, the pace of future cuts may slow.
Expectations are rising that Trump’s presidency could lead to larger budget deficits and higher inflation, which may influence future monetary policy. While interest rate cuts typically lead to lower borrowing costs for consumers and businesses, the broader economic impact of Trump’s fiscal policies may complicate the Fed’s decision-making moving forward.
As the U.S. economy faces a period of uncertainty, the Federal Reserve’s next moves will be closely watched, particularly as political and economic dynamics evolve under a new administration.