Federal Reserve cuts rates to lowest level in three years
The Federal Reserve has cut interest rates to a three-year low in a divisive decision as mounting concerns over a weakening US labour market outweighed persistently high inflation.
The central bank lowered the benchmark federal funds rate by a quarter point for the third time in a row to a range of 3.5 per cent to 3.75 per cent, matching Wall Street forecasts.
Policymakers said that the unemployment rate had “edged up through September” amid “downside risks” to the labour market, with the latest quarterly economic projections also anticipating a sharper reduction in inflation next year than previously expected.
Nine of 12 rate-setters supported the rate cut, with two members — the Chicago Fed’s Austan Goolsbee and the Kansas City Fed’s Jeffrey Schmid — backing a hold and Fed governor Stephen Miran calling for a half-point cut.
The scale of dissent was the highest since 2019, with committee members split ahead of the meeting over whether to prioritise the Fed’s commitment to lower inflation over rate-setters’ pledge to maintain full employment.
The decision follows two quarter-point cuts to rates at both of the FOMC’s previous meetings, after labour market data signalled that after years of strength, job creation in the world’s largest economy had slowed sharply.
Projections released alongside Wednesday’s decision showed senior officials now expect the central bank’s benchmark interest rate to be 3.4 per cent at the end of next year, compared with market expectations of about 3.15 per cent.
Still, the so-called dot plots showed a sharp divergence of views — three members thought borrowing costs would end 2026 higher than they are now, while one pencilled in six quarter-point cuts.
While the jobless rate remains low by historical standards, more dovish FOMC members say other data shows the US economy is no longer creating jobs at a fast enough pace.
Others on the committee argue that signs of more inflation in the services sector that dominates US economic output mean the Fed has little room left to cut borrowing costs.
The projections released with the Fed statement show policymakers expect inflation to fall to 2.4 per cent by the end of next year — against a September estimate of 2.6 per cent.
Headline personal consumption expenditures inflation was 2.8 per cent in the year to September.
The Fed also said on Wednesday that it would resume buying short-term Treasuries to ease strains in US money markets.
The central bank stopped shrinking its balance sheet at the start of this month as it decided that the so-called quantitative tightening process had soaked up enough liquidity from the financial system since it began in 2022.
S&P 500 finishes shy of record after Fed delivers rate cut hat-trick
The S&P 500 closed just shy of a record as the Federal Reserve announced its third consecutive rate cut and said it would resume buying short-term securities to ease strains in US money markets.
Wall Street’s benchmark index finished two-thirds of a percentage point higher for its third-highest closing level on record. At close, the S&P 500 now sits about 0.5 per cent from its intraday peak that was notched up on October 29.
The gains contrast the typical post-meeting performance of the S&P 500 during the Fed’s current easing cycle. For the past 11 meetings, the index has advanced on only four of those occasions.
The tech-heavy Nasdaq Composite rose 0.3 per cent, its eighth gain of the past 10 sessions.
The yield on the two-year Treasury note, which is sensitive to monetary policy expectations, was down 0.07 percentage points at 3.54 per cent.
Trump says Fed’s rate cut should have been ‘at least double’
Donald Trump said the Federal Reserve’s interest rate cut should have been “at least double” as he launched a new attack on Jay Powell, the chair of the US central bank.
At a White House event on Wednesday, Trump complained about a “deadhead Fed”.
The president said: “This guy, the head of the Federal Reserve, is a stiff. We fight that, and yet interest rates are going down. Except with him, not too much. He did a rather, I would say, a rather small number that could have been doubled, at least double.”