Federal Reserve: A More Cautious 25bps Rate Cut

As expected, the Fed extended the monetary easing cycle it kicked off in September, cutting interest rates by 25 basis points—a move called by the vast majority (84/96) of the forecasters surveyed by Bloomberg.

It made just a couple of changes to the press release compared to September’s statement, including a bit more detail about the labour market slowdown. It also dropped the language about the committee having greater confidence that inflation is moving sustainably toward the 2% target. This could just reflect the fact that as inflation nears its target, Powell and company are focusing on the two parts of their dual inflation/employment mandate in a more balanced way. Powell said the omission shouldn’t really be taken as forward guidance.

Of course, the Fed probably hasn’t yet factored in the economic and inflationary implications of a second Trump term. If Trump is able to pass his whole agenda, including new tax cuts, high tariffs and lower immigration, it could fuel inflation down the line. We might get a glimpse of the Fed’s thinking about this in its December projections. But until Trump makes official policy announcements, the Fed is unlikely to shift its monetary policy in any way that would show up in its projections. During today’s press conference, Powell said, “the election will have no effects on our policy decisions” and “we don’t guess, we don’t speculate and we don’t assume” when it comes to the consequences of future policy decisions.

In the meantime, he reiterated that “we are not on any preset course. We will continue to make our decisions meeting by meeting.” That said, aside from the recent jobs numbers, which were affected by two hurricanes and a strike, the Fed is encouraged by the strong economic indicators. At the same time, Powell said that monetary policy remains restrictive. So even though growth is solid and there’s no real rush to get back to the neutral rate, we can expect more rate cuts to come.