Fed Cuts Rates Again – The New York Times

Fed officials lowered interest rates to a range of 4.5 to 4.75 percent on Thursday, but avoided talking about politics in their post-meeting statement. They included no overt signal about what might come next for interest rates in their release.

And Jerome H. Powell, the Fed chair, said during a news conference on Thursday afternoon that the Fed’s immediate path would not be impacted by Mr. Trump’s win.

“In the near term, the election will have no effects on our policy decisions,” Mr. Powell said. “We don’t guess, we don’t speculate, and we don’t assume.”

America’s central bank is independent of the White House, which means that it sets interest rates without needing approval from the president or administration. To protect that independence, Fed officials try to avoid talking about politics directly.

But policymakers may need to consider how a Trump presidency might change the economic outlook in the months and years ahead, since it could be important to the outcome of their two official goals: maintaining slow and stable inflation as well as a strong labor market.

The Fed has been making progress toward those targets in recent months.

Inflation jumped sharply starting in 2021 and peaked in 2022, but it has been moderating ever since. As of the latest report, it is nearly back to normal: September price increases came in at 2.1 percent overall, just above the Fed’s 2 percent goal.

A “core” inflation index that strips out food and fuel to capture the underlying inflation trend remains slightly more elevated.

At the same time, the job market has been slowing. Companies continue to hire, but at a more muted pace than in 2022 and 2023, and the unemployment rate has nudged higher over the past year.

Given those developments, Fed officials began to cut interest rates with an unusually large half-point reduction in September. They also forecast at that meeting that they would make another half-point rate cut in 2024, followed by a full percentage point of reductions in 2025. Policymakers have been clear for weeks that those moves were likely to come in quarter-point increments, and that when and whether they happen will depend on incoming economic data.

“In considering additional adjustments,” the Fed said in its statement Thursday, “the Committee will carefully assess incoming data, the evolving outlook and the balance of risks.”

Recent economic data have suggested that there is no need for the Fed to rush. The jobless rate has stabilized, and consumer spending has been surprisingly strong, so the economy does not appear to be anywhere near the precipice of a painful crash.

“Since earlier in the year, labor market conditions have generally eased,” the Fed’s fresh statement said, dropping previous language that said the labor market had “slowed.”

But Mr. Trump’s election could complicate the Fed’s path ahead on rate cuts.

Economists widely think that the big tariff increases Mr. Trump proposed while campaigning — which could include across-the-board levies on all trading partners, and 60 percent tariffs on China — could lift prices.

And while trade conflicts did not lead to out-of-control inflation under Mr. Trump’s first presidency, what he is proposing this time is more extensive. These tariffs would also come at a time when inflation has already been high. And they could come in conjunction with other White House policies, like tax cuts, that have the potential to add renewed fuel to price increases.

It is unclear exactly how much Mr. Trump’s plans will change the economic picture, because much depends on how they are implemented. But investors started to bet on faster price increases and fewer Fed rate reductions as Mr. Trump’s victory began to look more likely.

For the Fed, the immediate question will be whether it still makes sense to lower interest rates in December, the central bank’s next gathering and the final meeting of 2024. That move was already widely seen as likely but not guaranteed.

Policymakers will also release a fresh set of economic projections following that meeting. In those forecasts, officials will have to estimate how much they expect to lower interest rates next year — which means they need to contemplate the path the economy is likely to take in 2025.

Back in 2016, when Mr. Trump was first elected, Fed officials and staff members discussed the change at length at the December meeting following the election, a transcript from the gathering showed. The word “election” surfaced 72 times.

But officials seemed to view the election as an input into the economic picture, not as a game-changer that required a more immediate reaction.

The Fed could take that approach again this time.

“What they probably will do, and need to do, is start to think about a lot of what-ifs,” Donald Kohn, a former vice chair of the Fed and now a senior fellow at the Brookings Institution, said ahead of the Fed meeting. “They can’t react until there’s a concrete proposal.”