US Federal Reserve Cuts Interest Rates for the Second Time in a Row

The U.S. Federal Reserve has decided to lower its key interest rate for the second consecutive time in 2024. After a two-day meeting of the Federal Open Market Committee (FOMC), the Fed announced it would reduce its benchmark interest rate by 0.25 percentage points (25 basis points) to a range of 4.50% to 4.75%. This marks a continuation of the Fed's strategy to ease interest rates following a reduction in September, which was the first rate cut in four years.

The decision comes as inflation pressures have cooled and the U.S. economy remains strong. While inflation has eased to 2.1% as of September, the Fed also noted that economic growth and the labor market remain robust, despite some challenges like a slowdown in hiring due to weather and a labor strike.

Fed Cuts Rates Despite Political Uncertainty

The Federal Reserve decided to go ahead with the rate cut despite concerns surrounding the outcome of the 2024 U.S. presidential election. After Donald Trump's victory, many questioned how his policies might affect the economy and interest rates. However, Fed Chair Jerome Powell and other policymakers were clear: the election would not influence their decision-making. Powell emphasized that the Fed would not speculate on the election results, as it focuses solely on economic data.

The rate cut is expected to make borrowing cheaper for consumers, which could benefit those looking for mortgages or other loans. However, how the markets will react to Trump's potential policies in the long term remains uncertain.

Jerome Powell Stays Firm on Leadership

Fed Chair Jerome Powell made it clear that he would not resign from his position, even if asked to do so by President-elect Donald Trump. Powell’s term as chair is set to end in 2026, but he stated he would continue in his role until then. This comment comes in the wake of Trump's past criticism of Powell and the Fed.

During his campaign, Trump repeatedly accused Powell of making decisions that favored Democrats and suggested he might replace Powell when he took office. However, the law prevents the president from easily firing members of the Federal Reserve, including its governors. Powell's comments highlight the independence of the Fed from political influence.

Powell Optimistic About U.S. Economy, Signals Cautious Rate Cuts

Jerome Powell expressed confidence in the U.S. economy, saying that current economic conditions are strong, and the Fed’s policies are in a "very good place." However, Powell also indicated that the Fed would proceed carefully with future rate cuts to ensure continued economic stability.

The Fed aims to bring interest rates to a "neutral" level, where they neither stimulate nor slow down the economy. Powell emphasized that the pace of future rate cuts would depend on incoming economic data. He said that the Fed’s approach would be to avoid moving too quickly and risking inflation or moving too slowly and weakening the job market.

Fed Slows Down the Pace of Balance-Sheet Reductions

In addition to cutting rates, the Federal Reserve also announced it would slow the pace at which it reduces its balance sheet. Since 2022, the Fed has been shrinking its balance sheet by selling off Treasury securities and mortgage-backed securities. The new plan will reduce the pace of this "balance-sheet runoff" from $60 billion per month to $25 billion. This change is expected to ease the pressure on financial markets and provide more liquidity.

Wall Street Reacts Positively: Stocks Hit Record Highs

Following the Fed's announcement, U.S. stock markets surged to new all-time highs. The S&P 500 and Nasdaq both set fresh records, driven by strong gains in major tech stocks such as Meta (formerly Facebook) and Apple.

• S&P 500: Up 0.7% to 5,973.10
• Nasdaq: Up 1.5% to 19,269.46
• Dow Jones: Remained largely flat at 43,729.34

This rally is part of a broader post-election boost in stock prices, with investors reacting positively to the Fed's actions and a more favorable economic outlook.

Also read: India's Stock Market Rises on Positive US Election News

Summary

The U.S. Federal Reserve has cut its benchmark interest rate by 0.25 percentage points (25 basis points) to 4.50%-4.75%, marking the second rate reduction in two months. This decision comes after inflation eased to 2.1% in September, and the economy remains strong, with steady growth and a robust labor market.

Despite concerns about the impact of Donald Trump's election victory, the Fed moved forward with the rate cut, emphasizing that political events would not influence its economic policies. Fed Chair Jerome Powell also made it clear he would not resign if asked by Trump, reinforcing the Fed's independence.

Powell expressed confidence in the U.S. economy but signaled that future rate cuts would be gradual, depending on economic data. The Fed also announced a slower pace of reducing its balance sheet, cutting the amount of Treasury bonds sold each month.

Following the Fed's announcement, U.S. stock markets hit record highs, with major indices like the S&P 500 and Nasdaq climbing sharply, driven by strong performance in tech stocks. Overall, the Fed's actions reflect a careful approach to balancing inflation control with continued economic growth.