Getty ImagesThe US central bank has cut its key interest rate again as Donald Trump’s election as president adds new uncertainty about the future of borrowing costs.
The cut puts the Federal Reserve’s lending rate in the range of 4.5%-4.75%.
It marked the second straight decrease after the Fed lowered interest rates for the first time in more than four years in September, signaling confidence that the bullish momentum was finally stabilizing.
Forecasters expect borrowing costs to fall further in the coming months but warn that Trump’s plans to cut taxes, immigration and tariffs could put pressure on inflation and spur borrowing government, further complicating those bets.
US debt interest rates jumped this week, reflecting those concerns.
The decision came on the same day as the Bank of England warned that it could take longer for borrowing costs to fall, warning that inflation could soar after last week’s Budget.
“On both sides, we are seeing expectations for future rate cuts come down significantly from what many had initially hoped for,” said Lindsay James, investment strategist at Quilter Investor. head”.
“In the US, it seems likely that interest rates will stay high for longer as the Fed will need to tread very carefully until it can better assess the true impact of Trump’s plans.”
Fed Chairman Jerome Powell said on Thursday that it was too early to know how the new administration’s agenda might affect the US economy.
“This is just the early stages – we don’t know what the policies are, we don’t know when they will be implemented,” he said. “Going forward, the election will have no impact on our policy decisions.”
As well as increasing uncertainty about future interest rate decisions, the election could also pose new political challenges for Powell, who was appointed Fed chair by Trump but later became Fed chair. became a frequent target of his criticism.
US media reported that Trump’s allies are looking for ways for the White House to assert more control over the Fed.
On Thursday, Mr. Powell pushed back against suggestions that the new president might have the power to change top personnel at the bank.
He said he would not resign if Trump asked him to and said the White House forcing him to resign was “not allowed under the law”.
Mr. Powell has faced intense scrutiny over the past few years, as prices began to rise sharply in 2022.
The bank responded by rapidly raising interest rates that year, eventually raising them from near zero to around 5.3% in July – the highest rate in more than two decades.
Those increases hit the public in the form of higher costs of credit cards, mortgages and other loans.
The Fed began reversing course in September, cutting interest rates 0.5 percentage points larger than usual, saying it was confident that price growth in the United States was stabilizing.
Inflation in the US stood at 2.4% in September, down from more than 9% in June 2022, according to the latest official figures.
The cuts, announced on Thursday, were widely expected and agreed to lower interest rates by another 0.25 percentage points.
Mr. Powell said Thursday that officials remained focused on keeping prices stable and the job market healthy.
While concerns flared earlier this year about rising unemployment, those concerns subsided in September, after data showed an unexpectedly strong increase in hiring.
However, the latest figures show job growth was almost non-existent in October, as the country struggled with storms and strike action.
He said officials expected to continue cutting interest rates, but it was not yet known how quickly and by how much, but declined questions seeking more precise guidance.
“We don’t think this is a good time to give much further guidance – there’s quite a bit of uncertainty,” he said. “It’s a matter of finding the right pace and destination as we go.”
