Job growth has slowed this year and the unemployment rate rose slightly, but remained low through August; more recent indicators are consistent with these developments. Inflation has risen since earlier this year and remains somewhat elevated, the Fed said in a statement.
Policymakers voted 10-2 in favor of cutting the bank’s key interest rates to 3.75 to 4.00 percent, the report said.
Opposing the action were Fed Governor Stephen Miran, who supported a larger half-point cut, and Jeff Schmid, president of the Kansas City Fed, who “favored no change to the target range for the federal funds rate at this meeting,” the Fed said.
The Fed said it will continue to monitor incoming data on inflation, wage growth and job creation before deciding on future policy actions.
The current cut marks the Fed’s continued efforts to protect the economy from slowing job growth and the lingering effects of trade disruptions. The U.S. central bank, which has a dual mandate to control inflation and ensure maximum employment, has shifted its focus in recent months to supporting hiring even as inflation remains above its 2% target. The Fed also announced on Wednesday that it would end its balance sheet shrinking policy on December 1. The Fed’s balance sheet exploded in the early days of the Covid-19 pandemic and has been gradually reduced in recent years. The central bank’s decision comes against the backdrop of an ongoing political stalemate in Washington and patchy economic data releases following the government shutdown earlier this month. Despite these challenges, the U.S. economy remains resilient, with consumer spending and demand for services remaining strong even as production and employment show some fatigue.
Republicans and Democrats remain at a political standoff nearly a month after the shutdown began, which has resulted in a suspension of the publication of almost all official economic data.
For emerging markets like India, a Fed rate cut generally eases pressure on capital outflows and supports risk sentiment, although much will depend on Powell’s future guidance.
Markets are now looking for clues as to whether the central bank will make another rate cut at its December policy meeting.
Wall Street stocks soared to record highs ahead of the Fed outcome, as the market value of artificial intelligence giant Nvidia reached $5 trillion. Nvidia, which in July became the first company to reach $4 trillion, followed that up by becoming the first to reach $5 trillion.
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