The Federal Reserve gives Americans another interest rate cut
MANDEL NGAN/AFP via Getty Images; Chelsea Jia Feng/BI
- The Federal Reserve cut interest rates by 25 basis points on Thursday.
- It follows a 50-basis-point cut in September, with the pace of inflation continuing to cool.
- The Fed will likely begin considering the impact of President-elect Trump's tariff proposals on the economy.
Another interest rate cut is headed Americans' way.
On Thursday, the Federal Open Market Committee announced a 25-basis-point interest rate cut, following a 50-basis-point cut in September. It follows continued data showing inflation is nearing the Federal Reserve's 2% target — the consumer price index, a commonly-watched measure of inflation, rose 2.4% over the year in September.
This latest interest rate decision also came two days after Donald Trump won the presidential election. Trump is expected to implement high tariffs once his term begins, and members of the FOMC will likely begin discussing the impact of the president-elect's policies on the economy and forthcoming interest rate decisions.
"A victory for Trump could raise doubts over a December cut, and the Fed may strike a more hawkish note as a result," Matthew Ryan, head of market strategy at financial services firm Ebury, said in a statement last week.
Trump's victory also throws into question the future of the Fed itself. Trump has previously said that he would like to have a say in interest-rate decisions, challenging the politically independent nature of the central bank.
Fed chair Jerome Powell will likely offer more insight into the Fed's thinking following Trump's victory. He has expressed confidence in the economy's direction in recent months, saying during remarks in late September that "overall, the economy is in solid shape."
"We intend to use our tools to keep it there," he said.
However, recent jobs data will make it difficult for the central bank to give a clear vision of its upcoming decisions. The economy added just 12,000 jobs in October, well below the 106,000 forecast, primarily because Hurricanes Milton and Helene — along with the Boeing strike — put people temporarily out of work, artificially driving down the employment figures.
It will take time for Americans to feel the impact of interest rate cuts, given the lag in monetary policy, meaning credit cards, housing, and car loans won't see immediate relief.
The 25-basis-point cut was in line with market predictions. Still, some Democratic lawmakers urged the Fed to implement another 50-basis-point cut to give Americans continued financial relief. On November 1, Sens. Elizabeth Warren and John Hickenlooper wrote in a letter to Powell that housing costs "are still too high," and bigger rate cuts are warranted.
"If the Fed moves forward with more rate cuts, housing prices and mortgage rates would thus also likely drop, allowing more families to achieve the American dream," they wrote.