Federal Reserve cuts key rate but signals higher bar for future reductions

WASHINGTON AP The Federal Reserve reduced its key interest rate for the third time in a row Wednesday but signaled that it may leave rates unchanged in the coming months a move that could attract ire from President Donald Trump who has demanded steep reductions to borrowing costs In a declaration issued after a two-day meeting the Fed s rate-setting committee signaled that it may keep its rate unchanged in the coming months And in a set of quarterly economic projections Fed representatives signaled they expect to lower rates just once next year Wednesday s cut reduced the rate by a quarter-point to about the lowest it has been in nearly three years Lower rates from the Fed can bring down borrowing costs for mortgages auto loans and credit cards over time though realm forces can also affect those rates Three Fed representatives dissented from the move the the majority dissents in six years and a sign of deep divisions on a committee that traditionally works by consensus Two authorities voted to keep the Fed s rate unchanged while Stephen Miran whom Trump appointed in September voted for a half point cut December s meeting could usher in a more contentious period for the Fed Authorities are split between those who patronage reducing rates to bolster hiring and those who d prefer to keep rates unchanged because inflation remains above the central bank s target Unless inflation shows clear signs of coming fully under control or unemployment worsens those divisions will likely remain And Trump could name a new Fed chair as soon as later this month to replace Powell when his term ends in May Trump s new chair is likely to push for sharper rate cuts than plenty of representatives may backing A stark sign of the Fed s divisions was the wide range of cuts that the members of the Fed s rate-setting committee penciled in for Seven projected no cuts next year while eight forecast that the central bank would implement two or more reductions Four supported just one Only out of members vote on rate decisions At a press conference following the announcement of the rate cut Powell signaled that the Fed may hold off on cutting rates at least in January and stated Fed bureaucrats will scrupulously evaluate the incoming records adding that the Fed is well positioned to wait to see how the market evolves He did however rule out an increase in rates What you see is specific people feel we should stop here and we re in the right place and should wait and various people think we should cut more next year Powell commented The Fed met against the backdrop of elevated inflation that has frustrated countless Americans with prices higher for groceries rents and utilities Powell has previously acknowledged those frustrations and disclosed they reflect the sharp overall price increases in the five years since COVID Consumer prices have jumped in that time In a delayed description last week the establishment revealed the Fed s preferred inflation gauge remained high in September with both overall and core prices rising from a year earlier That is far below the spikes in inflation three years ago but still painful for a large number of households after the big run-up since The Fed typically keeps its key rate elevated to combat inflation while it often reduces borrowing costs when unemployment worsens to spur more spending and hiring Adding to the Fed s challenges job gains have slowed sharply this year and the unemployment rate has risen for three straight months to While that is still a low rate historically it is the highest in four years Layoffs are also muted so far as part of what a large number of economists call a low hire low fire job sphere The lack of economic content since the cabinet shutdown ended Nov has contributed to the divisions at the Fed But when Fed agents next meet in late January they ll have up to three months of backlogged reports to consider If those figures show that the job area has worsened the Fed could reduce rates again in January By contrast if hiring has stabilized while inflation remains elevated they may hold off on additional cuts for several months The Fed met against the backdrop of Trump s move to name a new Fed chair to replace Powell in May In an interview with Politico published Tuesday Trump explained yes when petitioned if reducing rates this instant was a litmus test for a new Fed chair Trump has hinted that he will likely pick Kevin Hassett his top economic adviser Hassett has often called for lower borrowing costs but this week has been more circumspect In an interview Tuesday on CNBC when petitioned how multiple more rate cuts he would backing Hassett did not give a specific answer and mentioned What you need to do is watch the input Source