The Federal Reserve cut interest rates by a quarter percentage point amid what could be an economic challenge when President-elect Donald Trump takes office next year, according to Reuters.
Fed Chair Jerome Powell said the outcome of Tuesday’s presidential election would not have a “near-term” impact on US monetary policy. Powell added that the Fed will continue to evaluate the data to account for inflation, which slowed markedly last year and is approaching the US central bank’s 2% target.
It’s a process that takes some time. It’s all of the policy changes that are happening. What’s the net effect? The overall effect on the economy at a given time? That’s a process … we go through all the time with every administration.
However, the exact destination remains unknown and will be even harder to determine if fiscal and tax policy changes as quickly as Trump has promised. Powell, who was appointed by Trump and then clashed with him during the Republican president’s first term, will now oversee monetary policy in the first critical months of the new administration.
So far, inflation and interest rates have fallen in line with the Fed’s forecast, which believes price pressures continue to ease amid continued economic growth and the labour market.
Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, did not rule out the possibility of another quarter per cent rate cut at the Fed’s final meeting of the year on December 17-18.
The easy cuts have been made, and maybe December won’t be too contentious either. Thereafter, I imagine the Fed is asking the same questions as investors – to what extent and when will the incoming Trump administration implement its campaign policy proposals?
Powell said the economic outlook was good at this point and the Fed hoped it would remain that way.
This further recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation as we move toward a more neutral stance over time.
The Fed’s policy statement noted that risks to the labour market and inflation are “roughly in balance,” repeating language from the statement issued after the September 17-18 meeting.
Powell stated that the change in wording did not mean that inflation had become sustainable. The Fed, he said, had always expected progress to be uneven, and policymakers have confidence that inflation is on a steady path toward the 2% target.
