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, the Fed said in a statement.
Policymakers voted 10-2 in favor of lowering the bank’s key lending rate to between 3.75 percent and 4.00 percent, it said.
Opposed to the action were Fed governor Stephen Miran, who backed a bigger half-point cut, and Kansas City Fed president Jeff Schmid, who “preferred no change to the target range for the federal funds rate at this meeting,” the Fed said.
The Fed said it will continue monitoring incoming data on inflation, wage growth, and job creation before deciding on future policy actions.
The current reduction mark the Fed’s continued effort to cushion the economy from slowing job growth and lingering effects of trade disruptions. The US central bank, which has a dual mandate to keep inflation under control and ensure maximum employment, has shifted its focus in recent months toward supporting hiring even as inflation stays above its 2% target.The Fed also announced Wednesday that it would end its policy of shrinking the size of its balance sheet on December 1. The Fed’s balance sheet ballooned 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 continued political gridlock in Washington and patchy economic data releases due to the government shutdown earlier this month. Despite these challenges, the US economy remains resilient, with consumer spending and services demand holding up, even as manufacturing and hiring show some fatigue.
Republicans and Democrats remain politically gridlocked almost a month after the start of the shutdown, which has resulted in a suspension of publication of almost all official economic data.
For emerging markets like India, a Fed rate cut typically eases capital outflow pressure and supports risk sentiment, though much will depend on Powell’s forward guidance.
Markets are now watching for any clues on whether the central bank will follow through with another rate cut at its December policy meeting.
Wall Street stocks jumped to record highs before the Fed outcome, as artificial intelligence giant Nvidia’s market value reached $5 trillion. Nvidia, which in July became the first company to top $4 trillion, followed that up by becoming the first to hit $5 trillion.