The US Federal Reserve (Fed) on Thursday announced a second consecutive year of lower interest rate benchmarks, a move widely anticipated by investors.
The Federal Reserve has announced that its target range for the federal funds rate (the rate at which interest rate banks charge each other to borrow their reserves) will be 4.50% to 4.75%, a quarter of a percentage point lower than the target announced in September. did.
This would be a more gradual approach than the Fed's deep 50 basis point (bp) rate cut in September, reflecting a recalibration of monetary policy. The Fed's decision to announce deep interest rate cuts in September, just weeks before the presidential election, was widely criticized by Republicans as giving the impression of inappropriate politicization.
This rate cut was the first negative vote by a Fed president in nearly 20 years. Gov. Michelle Bowman, who previously opposed it, now supports the decision.
The Fed's statement signaled a change in the economic outlook. The bank said the risks to its dual mandate of maximizing employment and stabilizing prices were “broadly balanced,” signaling a slight departure from its previous confidence in containing inflation. Previous statements suggested the Fed was more concerned about the slowdown in the labor market and seemed increasingly confident that inflation would return to target.
The Fed meeting, which is traditionally held from Tuesday through Wednesday, was postponed because of Tuesday's presidential election, which handed Donald Trump a decisive victory.
President-elect Donald Trump's victory, coupled with an expected Republican majority in Congress, could lead to major changes in the economic landscape, with potential changes to tax, spending, immigration, and trade policy. There is sex. This expected alignment in Washington is fueling stock market gains, with many investors counting on President Trump's policies to revive economic growth.
President Trump's promise to raise tariffs is widely seen as complicating the Fed's mission. Some economists say tariffs would lead to further inflation, but economic theory and history suggest those fears are unfounded. At worst, tariffs are likely to cause a temporary rise in some prices, without the kind of widespread, sustained inflation that would prompt a Fed response.
Similarly, the president-elect's pledges to remove illegal aliens and strengthen border security could raise labor costs, leading some to believe that increased incomes for U.S. workers could fuel inflation. I'm looking at it. However, this view contradicts the argument of many economists that immigrant labor does not depress the wages of workers already in the United States.
Chairman Powell said in a press conference Thursday that the Fed's policy has not yet been affected by President Trump's reelection.
“We don't know the timing or content of any policy changes,” Powell said. “So we don’t know what the economic impact will be.”
Even before the election, financial markets had become skeptical of the Fed's move toward easing. Treasury yields and mortgage rates have both risen since September's rate cut, and futures markets now indicate that the rate cut will be much smaller than previously expected. Rising interest rates may signal that the market believes inflation will persist longer than the Fed expects.
