Key Points

  • The Federal Reserve cut its benchmark interest rate by 25 basis points on Thursday, lowering the target range to 4.5% to 4.75%, citing a softening labor market and progress in bringing inflation back to its 2% target.
  • "The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance," the Federal Open Market Committee (FOMC), the policy-setting body, said after its two-day meetingin a statement. The decision was unanimous, in contrast to the 50-basis-point cut in September, which saw one dissenting vote.
  • "We remain confident that with an appropriate recalibration of our policy stance, the strength of the economy and labor market can be maintained, while inflation will continue to move down to 2%," Fed Chair Jerome Powell said at a press conference following the release of the FOMC statement.

In-Depth Analysis

The rate cut comes just two days after Donald Trump won a second presidential term in the election. Trump's return to the White House signals potential shifts in U.S. economic policy that could fuel inflation and affect future FOMC decisions.

During his campaign, Trump promised to cut various taxes, which could stimulate economic growth and likely increase upward pressure on prices. He also pledged to imposetariffs of 10% to 20% on all imported goods, with rates as high as 60% on Chinese goods.

Both policy changes could complicate the Fed's efforts to bring inflation down to its 2% target from over 9% two years ago.

Wall Street traders and economists believe the risk of rising inflationary pressures could prompt the Fed to cut rates more slowly than expected before the election.

"Trump's victory closes the door on the Fed achieving rapid policy normalization next year," Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said in a note to clients on Thursday.

Tombs noted that tariffs on imported goods could be particularly inflationary. Trump's "proposed tariffs could undo the battle to bring core PCE price index inflation back to the 2% target."

According to the median of Fed officials' projections at their September meeting, they expected to lower the federal funds rate to 4.4% by December and to 3.4% by the end of next year.

Powell said that in the near term, the election will not have an impact on monetary policy.

"We don't know the timing or the substance of any policy changes," Powell said, "and therefore we don't know what the effects on the economy will be."

"We don't guess, we don't speculate, and we don't assume," he said, declining to comment on the election results.

Powell said central bank officials believe the economy and monetary policy are "both in a very good place."

According to the Bureau of Economic Analysis, GDP grew at an annualized rate of 1.4% in the first quarter,3% in the second quarter, and 2.8% in the third quarter.

According toa forecast released by the Atlanta Fed on Thursday, the economy could grow at an annualized rate of 2.5% in the current quarter.

"This is a strong economy," Powell said.

"The U.S. economy is really performing very well, with strong growth, a solid labor market, and inflation coming down," he said. "We're really outperforming every other economy in the world, and I think that's reflected in what you hear and what I hear from CEOs."

In response to a reporter's question, Powell said that President Trump does not have the authority to remove him or any other governor.

"The law does not permit the president to do that," Powell said.

During Trump's first term, he frequently criticized monetary policy on social media.

Powell said he would not resign if Trump asked him to. His term as Fed chair runs until May 2026.

Editor's note: This version updates an earlier report.