MercoPress. South Atlantic News Agency

Fed lowers benchmark interest rate

The Fed's decision was shadowed by the ongoing government shutdown

Amid a softer labor market, the United States' Federal Reserve (Fed) voted Wednesday to cut its benchmark interest rate by 0.25 basis points, moving the target range to 3.75%–4%. This marks the lowest level in three years and continues the easing cycle dating back to last month.

The Federal Open Market Committee (FOMC) justified the quarter-point reduction by noting that, since the previous cut, “available indicators suggest that economic activity has expanded at a moderate pace.”

Fed Chair Jerome Powell later elaborated on the decision, stating that evidence indicates the labor market has “softened.”

“Layoffs and hiring remain low, and that households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline in this less dynamic and somewhat softer labor market,” Powell said.

The committee's statement added that job growth has slowed this year and, despite remaining low, “the unemployment rate has risen slightly.” The Fed also projected that “downside risks to employment have increased in recent months.”

The decision was made with a 10-2 vote among FOMC members, marking the first time since the committee's creation in the 1930s that officials have set monetary policy without a full month of crucial public employment data due to the ongoing government shutdown.

Powell acknowledged the hurdle, noting that key reports on monthly jobs, GDP, housing, and retail sales have been paused. However, he pointed out that data available before the shutdown was “surprisingly positive,” primarily reflecting stronger consumer spending.

In addition to the rate cut, the Fed announced it would end its program of reducing asset purchases, known as quantitative tightening, on December 1. This program was implemented to slow inflation by decreasing the money supply and improving the Fed's balance sheet.
Looking ahead, the committee showed little consensus for future action.

“In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December,” Powell noted. “A further reduction in the policy rate at the December meeting is not a foregone conclusion—far from it.”

The move comes after the September Consumer Price Index report showed inflation rose to 3%. Despite this, some market analysts, such as Scott Helfstein of Global X, suggested inflation data was not high enough to deter the Fed from cutting rates to support the economy.