Fed Cuts Interest Rates Amid Slowing Job Market and Steady Inflation

The U.S. Federal Reserve recently announced a quarter-point interest rate cut in response to moderating labor market conditions and steadying inflation trends that are aligning closer to the Fed’s 2% target. Following a two-day policy meeting, the Federal Open Market Committee (FOMC) revealed that economic growth remains robust, adjusting the benchmark rate to a new range of 4.5% to 4.75%, a move largely anticipated by markets.

The Fed’s statement highlighted that, although the unemployment rate is still low, the labor market overall has “generally eased.” This subtle change in language reflects a shift from its previous emphasis on slowing job growth, signalling a broader outlook on employment conditions.

In discussing inflation, the statement acknowledged that price pressures have “made progress” towards the Fed’s objectives, slightly downplaying the “further progress” noted in September. The personal consumption expenditures (PCE) price index, a core inflation measure excluding food and energy, held steady at an approximate 2.6% annual pace as of September. Fed Chair Jerome Powell reiterated that the rate adjustments are designed to sustain economic resilience, suggesting the aim is to find a neutral policy stance where growth neither accelerates nor decelerates.

Powell, however, provided limited guidance on the timeline for future cuts, emphasizing the Fed’s cautious approach. “We think that the right way to find neutral…is carefully, patiently,” he explained, underscoring that the trajectory of rate cuts will hinge on forthcoming data.

The Fed’s outlook also factors in potential policy changes with the re-election of President Donald Trump

Trump may enact trade tariffs and immigration policies that could introduce economic volatility. While Powell had a contentious relationship with Trump in the past, he affirmed that he has no intention of stepping down under political pressure, as the law secures his position until January 2028.

Market reactions to Trump’s return suggest reduced optimism about future rate cuts, as investors adjust to the likelihood of a more uncertain economic environment.

Shaun

Founder

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Shaun

Founder, Analyst

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