Additional Coverage:
- Fed cuts interest rates, warns of ‘challenging situation’ (abcnews.go.com)
Federal Reserve Cuts Interest Rates for Third Time This Year Amid Economic Uncertainty
Washington D.C. – The Federal Reserve made its third interest rate cut of the year on Wednesday, lowering its benchmark rate by a quarter of a percentage point. This move aims to stimulate a sluggish labor market and could offer some financial relief for individuals with mortgages and credit card debt.
The new benchmark rate now sits between 3.5% and 3.75%, a notable decrease from its 2023 peak. However, borrowing costs remain significantly higher than the near-zero rates seen at the start of the COVID-19 pandemic.
During a press conference, Fed Chair Jerome Powell highlighted the rate cut as a measure to improve the job market but also indicated a cautious approach to future reductions. “We’re well positioned to wait and see how the economy evolves,” Powell stated.
The decision was not without internal dissent, a rare occurrence among top Federal Reserve officials. Three of the twelve voting members on the Federal Open Market Committee, the Fed’s policymaking body, opposed the quarter-point cut. This marks the highest number of dissenters since 2019.
The central bank finds itself in a challenging position, grappling with a potential economic “stagflation” scenario where inflation has recently increased alongside a slowdown in hiring. The Fed’s dual mandate requires it to control inflation and maximize employment, primarily using interest rates as its tool.
Powell acknowledged the “challenging situation” stemming from these conflicting goals. “There’s no risk-free path for policy as we navigate this tension between our employment and inflation goals,” he explained. Holding rates steady to combat tariff-induced inflation risked a deeper slowdown in the labor market, while lowering them to boost hiring could exacerbate inflation by increasing spending.
Leading up to the decision, market sentiment increasingly favored a rate cut. Futures markets showed the odds of a quarter-point reduction soaring to nearly 90% just hours before the announcement, a significant jump from 30% last month, according to the CME FedWatch Tool.
This shift in sentiment was influenced by a mixed jobs report and public statements from key Fed allies. The September jobs report, while showing more workers added than expected, also indicated a rise in the unemployment rate to 4.4%, the highest since October 2021.
Following the report, New York Fed President John Williams, typically aligned with Powell, publicly expressed openness to a rate cut, stating he saw “room for a further adjustment in the near term.” San Francisco Fed President Mary Daly, another Powell supporter, echoed this sentiment shortly thereafter, despite not being a voting member this year.
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