The Federal Reserve (Fed) voted on Wednesday to lower interest rates for the second month in a row, but the broader market reacted negatively after Chairman Jerome Powell hinted that a new cut would not occur this year.
Key data
The Federal Open Market Committee (FOMC) voted 10-2 to reduce interest rates by a quarter of a percentage point, bringing them to between 3.75 and 4%, below the range of 4 to 4.25% that policymakers had proposed during the FOMC meeting last month.
Kansas City Fed President Jeffrey Schmid and Fed Governor Stephen Miran were the only dissenting votes: Miran again advocated for a half-percentage point cut following his dissenting vote in September, while Schmid preferred that the Fed not cut rates at all.
In its statement, the FOMC carried out its review of the labor market, in which it notes that “job creation has slowed and the unemployment rate has increased slightly, but has remained low during August.”
The Federal Reserve appeared to acknowledge the partial federal government shutdown, adding that “available indicators” suggest the U.S. economy expanded at a moderate pace and that inflation “has increased since the beginning of the year and remains somewhat elevated.”
More context: Fed cuts interest rate by 25 points
What did Powell say about interest rates?
Fed Chair Jerome Powell stated that policymakers had widely divergent views on how to proceed at the last FOMC meeting in December. A further reduction in interest rates is not a foregone conclusion, Powell said, far from it. He added that while some government data was delayed, available public and private sector data suggest that employment and inflation have not changed much since last month’s FOMC meeting.
Stocks fall after statements by Powell, which tempered hopes for a rate cut
The Dow Jones (down 0.2%) and the S&P 500 (0.3%) recorded declines following Powell’s statements, reversing initial gains driven mainly by Nvidia’s spectacular rally, which has so far supported the Nasdaq (up 0.1%), a technology index. Boeing (4.3%) led declines in the Dow, followed by Nike (3.1%), UnitedHealth Group (3%) and Home Depot (2%).
Read more: Wall Street falls after US interest rate cut
Will the Fed cut rates again?
Investors are leaning toward an additional quarter-percentage point cut in interest rates at the last FOMC meeting in December, which could put them between 3.5 and 3.75%, according to CME’s FedWatch tool.
At their meeting last month, Fed officials appeared divided over whether to cut rates for the third time this year. However, it is unclear when he will have information on the health of the U.S. economy, as the partial federal government shutdown delayed reports on inflation and unemployment.
In a speech to the Council on Foreign Relations earlier this month, Federal Reserve Governor Christopher Waller said he supported the FOMC’s decision to ease monetary policy, indicating that its focus had been on a more dovish labor market rather than inflation. Waller noted that since policymakers “don’t know how the data will be interpreted in this situation,” the FOMC “should exercise caution” in adjusting interest rates.
Waller said he spoke with “business contacts” to get a perspective on the economy as the data gap continues. Reports released in recent weeks by several companies and economists suggest that the labor market continued to deteriorate, indicating that the FOMC may have data to justify an additional cut.
What to see
Before the end of the year, Trump will announce his successor for Federal Reserve governor, the position that ends in May 2026. Treasury Secretary Scott Bessent said Monday that five candidates are being considered for the job, including Fed Governors Waller and Michelle Bowman, former Federal Reserve Governor Kevin Warsh, National Economic Council Director Kevin Hassett and BlackRock executive Rick Rieder. Bessent said he will present the list of candidates to Trump shortly after Thanksgiving.
This text was originally published in Forbes US
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