The US Federal Reserve has announced another 25 basis point (bps) rate cut, adjusting the target fed funds rate from 4% to 3.75%, as markets had expected.
The Fed noted that while inflation has inched up since earlier this year, and remains elevated, other metrics like jobs and employment have countered inflation concerns. The Fed said that uncertainty for the economy remained “elevated.”
The Fed has a dual mandate of 2% inflation and full employment. The Fed reiterated its strong commitment to supporting maximum employment and returning inflation to its 2% goal.
Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.
Voting for a rate cut were Fed Chairman Jerome Powell, John Williams, Vice Chair; Michael Barr; Michelle Bowman; Susan Collins; Lisa Cook; Austan Goolsbee; Philip Jefferson; Alberto Musalem; and Christopher Waller.
Voting against the rate cut were Stephen Miran, who preferred a larger 50 bps cut.
Jeffrey Schmid preferred no change to the rate.
In prepared remarks, Chair Powell noted that another cut at the next meeting in December was not a foregone conclusion – in fact, “far from it.” Markets are anticipating another cut amid softer economic conditions. Chair Powell did say there seems to be a gradual cooling of economic activity, but forward expectations of Committee members were not decided. He did add that inflation away from tariffs was not far away from their 2% goal.
The economy remains volatile due to political policies, geopolitical uncertainties, and heightened risk from the unknown. At the same time, a potential trade deal with China in the coming days could help calm markets in the near term.
Markets reversed early-day gains on the Fed announcement.