Fed cuts rates as Powell ignores Trump-fuelled inflation risk

The US Federal Reserve cut its benchmark interest rate by 0.25 percentage points on Thursday, bringing the federal funds rate to a range of 4.5% to 4.75% — its lowest level since February 2023.

The quarter-point cut follows a more aggressive 0.5% reduction in September, underscoring a measured approach as the Fed assesses economic conditions and inflation trends.  

“This further recalibration of our policy stance will help maintain the strength of the economy and the labour market, and will continue to support progress on inflation as we move toward a more neutral stance over time,” Fed Chair Jerome Powell stated in his press conference. 

“Even with today’s cut, the policy is still restrictive,” he added.  

Solid growth but weak October job data

The Fed’s November statement noted that the US economy is growing at a “solid pace,” with GDP rising at an annual rate of 2.8% in the third quarter.  

“Growth of consumer spending has remained resilient,” Powell said. 

Easing inflation, however, remains “somewhat elevated”, with core Personal Consumption Expenditure (PCE) inflation – the Fed’s favorite price index measure – holding at 2.7% year-on-year, above the Fed’s target. 

Labour market conditions also remain solid, despite recent disruptions from worker strikes and hurricanes.

Powell noted that October job creation figures would have been better if it weren’t for these factors.

In October, nonfarm payrolls rose by only 12,000, well below the expected 115,000 and sharply down from September’s 223,000 growth.  

Data-driven policy and December predictions

The Fed reaffirmed its commitment to a data-dependent approach, with no fixed path for future rate adjustments.

The central bank also left its balance sheet reduction plan unchanged, signalling a steady approach to quantitative tightening.

By choosing not to reinvest money from expired bonds, the Fed is slowly reducing the amount of money in circulation.

Looking ahead, market participants assign a 66% probability to another 25-basis-point cut at the Fed’s final meeting of the year on 18 December, according to CME FedWatch data.

However, the recent election results, with Donald Trump securing the presidency and Republicans likely gaining control of Congress, are prompting investors to reconsider the likelihood of additional cuts.  

ADVERTISEMENT

Powell on Trump’s policies and treasury yields

Asked about a potential shift in economic strategy under Trump, Powell clarified that the Fed doesn’t speculate on the effects of administration policies or congressional actions. 

“In the near term, the election will have no effect on policy,” Powell stated.

Powell downplayed concerns over recent increases in US Treasury yields, attributing the rise to improved growth prospects rather than heightened inflation expectations.  

“We’re not at the stage where bond rates need to be taken into policy consideration,” Powell said.  

ADVERTISEMENT

He emphasised that the Fed still has six weeks to assess economic data before its next decision in December. 

Powell addressed speculation regarding his potential resignation following Trump’s election. When asked, “If he asked you to leave, would you go?”, he firmly replied, “No.”  

Pressed further with, “Do you believe the president has the power to fire you?”, Powell responded that this scenario is “not permitted under the law”.