Fed Chair Powell Refuses to Back Down Amidst Election Uncertainty
The United States Federal Reserve has taken a decisive step to maintain the country’s economic momentum, lowering interest rates by a quarter percentage point despite the re-election of President Donald Trump. This move marks the second consecutive rate cut, extending the central bank’s efforts to keep the economic expansion on solid ground.
A Firm Stance Against Political Pressure
When questioned about his potential resignation if requested by Trump, Fed Chair Jerome Powell responded unequivocally, “No.” He emphasized that removal or demotion of any Fed board leaders, including himself, is not permitted under the law. Powell assured that the presidential election will have no immediate impact on the central bank’s policy decisions, citing the uncertainty surrounding the timing and substance of potential fiscal policy changes.
Economic Outlook: Uncertainty and Risk
The Federal Open Market Committee acknowledged that the economic outlook is uncertain, with risks to both sides of its dual mandate. While policymakers expressed confidence in the labor market, they noted that conditions have generally eased since earlier in the year, with the unemployment rate moving up but remaining low. Powell described the labor market as “solid.”
A Measured Approach to Rate Cuts
After initiating the easing cycle with a larger rate adjustment, policymakers have adopted a more cautious approach to rate cuts moving forward. Powell reiterated that officials are not in a hurry to reduce borrowing costs, instead favoring a careful and measured approach.
Robust Economy, Cooling Trend
The US economy demonstrated resilience in the third quarter, growing at a 2.8% annual rate driven by consumer spending. However, concerns about labor market weakening persist, despite recent data suggesting a cooling trend. Inflation has subsided substantially, but progress has been uneven, with the rate of price increases easing to 2.1% in September.
Market Reaction and Future Outlook
Traders had anticipated a quarter-point cut, and futures markets indicate a high probability of another similar-sized cut in December. Treasury yields surged in the run-up to the election, affecting mortgage rates in an already sluggish housing market. The S&P 500 reached a record high following Trump’s victory. As the economic landscape continues to evolve, the Fed’s careful approach will be crucial in navigating the challenges ahead.
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