The Federal Reserve, led by Chair Jerome Powell, announced a second consecutive interest rate cut, reducing the benchmark overnight borrowing rate to a range of 3.75% to 4%. The decision was made by a 10-2 vote during the Federal Open Market Committee (FOMC) meeting. Along with the rate cut, the Fed confirmed it would halt its quantitative tightening process on December 1, ending the reduction of its asset purchases.
The dissenting votes came from Governor Stephen Miran, who advocated for a more significant half-point cut, and Kansas City Fed President Jeffrey Schmid, who opposed any rate reduction. Powell's remarks during the post-meeting news conference unsettled markets, as he indicated that a further rate cut in December was not guaranteed, despite traders anticipating an 85% likelihood of such an action.
The Fed acknowledged ongoing uncertainty in economic data collection due to a recent government shutdown, which has suspended crucial data reports. Despite this, the committee's statement characterized economic activity as expanding moderately, with job gains slowing and inflation remaining above target levels.
The FOMC expressed concerns over rising downside risks to employment and noted that while layoffs have been contained, hiring has plateaued. The consumer price index, a key inflation measure, has risen to 3%, driven by factors including higher energy costs and tariffs linked to President Donald Trump's policies.
The Fed also stated its plan to stop decreasing its bond portfolio, which had been reduced by approximately $2.3 trillion since the onset of the pandemic. Analysts suggest that, depending on market conditions, the Fed may need to resume asset purchases in the future. Historically, the stock market has responded positively to Fed rate cuts, although such policies can contribute to increased inflation risks.