The Federal Reserve cut its key lending rate by half a percentage point, at the top end of Wall Street expectations, saying a shaky job market poses a bigger risk to the economy than inflation.
But Fed Chairman Jerome Powell said economic observers should not assume the half-point cut represents “a new pace of further rate cuts.”
“We've been waiting, and I think that patience has paid off in the form of our confidence that inflation will remain sustainably below 2 percent, and I think that's why we're able to make such a strong move today,” Powell told reporters Wednesday.
“I don't think anyone is going to look at this and say, 'Oh, this is the new pace.'”
The Dow Jones Industrial Average initially surged 375 points to a record high after the Fed announced the big rate cut, but then turned lower in late trading as investors digested Chairman Powell's comments. The index was down 103.08 points, or 0.3%, to 41,503.10.
The S&P 500 also hit a new all-time high, while the Nasdaq ended lower.
With inflation just above its target, Fed officials are shifting their focus to supporting a weakening job market and achieving a rare “soft landing” that would curb inflation without sparking a recession.
“The Committee has increasing confidence that inflation is moving sustainably toward 2 percent and judges that the risks to achieving our employment and inflation objectives are roughly balanced,” the Fed's interest rate-setting committee said in a joint statement, with Governor Michelle Bowman dissenting, who had supported only a quarter-point cut.
White House press secretary Karine Jean-Pierre called the rate cut a “moment of progress” with less than 50 days until the election.
“If you think about buying a home, prices are going to come down. And housing is very important to the American people. That's how we look at it,” she said.
“This is a big cut,” Donald Trump said Wednesday.
“Assuming they're not playing politics, any cuts this big would be very bad for the economy,” Trump told reporters.
Republican presidential candidates and their aides argue that lowering rates would help Vice President Kamala Harris' campaign by convincing Americans that the economy is doing well and easing concerns about inflation.
Powell, who was appointed to the Fed's board of governors by President Obama and elevated to chairman by President Trump, denied taking any partisan stance.
“This is my fourth term as chairman of the Federal Reserve, and it's always the same,” Powell said. “We always come to this meeting, especially, asking what is the right thing to do for the people that we serve.”
Policymakers see the Fed's benchmark interest rate being cut another half-percentage point by the end of this year and another percentage point in 2025. The Fed has said it aims to cut rates by a final half-percentage point in 2026 to a range of 2.75% to 3.00%, which it considers a “neutral” stance that neither encourages nor discourages economic activity.
While inflation “remains moderately elevated,” the Fed statement said policymakers chose to lower the overnight rate to a range of 4.75% to 5.00% “balancing inflationary developments and risks.”
High interest rates and rising prices for everything from food to gasoline to rent have fueled widespread American disillusionment with the economy and have become a target for attacks by the Trump campaign.
Meanwhile, Harris has criticized President Trump for promising to impose tariffs on all imports, which she says will lead to higher prices for consumers.
In the long run, the Fed's rate cuts should make borrowing costs lower for mortgages, auto loans, credit cards, and even business loans.
Business spending would increase and stock prices could rise. Businesses and consumers would be able to refinance their loans into lower-interest debt.
In a highly-anticipated speech last month, Chairman Powell made it clear that Fed officials were confident inflation was largely under control.
It fell sharply to 2.5% last month from a peak of 9.1% in June 2022, but is not far above the Fed's 2% target.
Central bankers have raised their key interest rate 11 times in 2022 and 2023 to a 20-year high of 5.3% to combat soaring prices, reining in borrowing and spending and ultimately cooling the economy.
With post wire
