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The Federal Reserve announced a quarter-point cut to its benchmark interest rate on Thursday, with Chair Jay Powell expressing confidence in the strength of the US economy. Powell also stated that he would not resign if asked to do so by incoming President Donald Trump.
Following the unanimous decision, which came just two days after the recent election, the Fed lowered its target range to 4.5 per cent to 4.75 per cent. This rate cut was more moderate compared to the half-point cut made in September to address concerns about the job market.
The Fed’s meeting, which began a day later than usual due to the election, saw discussions about the potential impact of the new administration’s policies. President-elect Trump’s proposed measures include tariffs, deportations, deregulation, and tax cuts, all of which have implications for economic growth and inflation.
Despite the market’s positive response to Trump’s victory, concerns linger about the long-term effects of his proposed policies. Powell refrained from speculating on how the Fed would respond to the new administration, emphasizing the need for caution and patience in assessing economic policies.
While Trump has criticized the Fed for not cutting rates quickly enough during his first term, Powell made it clear that he would not resign prematurely at the president-elect’s request. Powell’s term is set to end in May 2026, at which point Trump will have the opportunity to nominate a new chair.
The Fed’s decision to cut rates led to a boost in the stock market, with the S&P 500 posting gains. Bond yields also saw a decline following the announcement, as investors reacted to the Fed’s actions.
Looking ahead, the Fed will continue to monitor economic data and adjust interest rates accordingly. Powell stressed the importance of a gradual approach to rate adjustments, taking into account the overall health of the economy.
As the US prepares for a new administration and potential changes in economic policies, the Fed remains committed to its mandate of ensuring stable inflation and a strong job market.
With inflation under control and the labor market showing resilience, the Fed’s decisions will continue to be data-driven. Economists predict further rate cuts in the near future, but Powell’s cautious approach suggests a measured response to changing economic conditions.
Additional reporting by Harriet Clarfelt in New York