At local time on Thursday (November 7), the Federal Reserve announced a 25 basis point reduction in the benchmark interest rate, lowering the federal funds rate target range from 4.75%-5% to 4.5%-4.75%, in line with mainstream market expectations for a rate cut.
This is the second rate cut by the Federal Reserve this year, following a 50 basis point cut in September, marking a 'back-to-back' reduction. This is also the second rate cut since March 2020, signifying that U.S. monetary policy has entered an easing cycle. The Federal Open Market Committee (FOMC) stated in its announcement that recent indicators suggest economic activity continues to expand at a solid pace, the labor market has generally eased, the unemployment rate has risen but remains low, and inflation has made progress toward the 2% target, though it is still somewhat elevated. The press release noted that the FOMC seeks to achieve full employment and a 2% inflation rate over a longer period, assessing that the risks to achieving employment and inflation targets are roughly balanced. (The statement about 'the committee's increasing confidence in inflation consistently moving toward 2%' was removed here.) Economic prospects remain unclear, and the FOMC continues to monitor the risks to its dual mandate. To support its goals, the committee decided to lower the federal funds rate target range by 1/4 percentage point to 4.5%-4.75%. When considering further adjustments, the committee will carefully evaluate upcoming data, the evolving outlook, and the balance of risks. The FOMC will continue to reduce its holdings of U.S. Treasury securities, agency bonds, and agency mortgage-backed securities (i.e., balance sheet reduction). The FOMC reiterated its strong commitment to supporting full employment and restoring the inflation rate to the 2% target. The press release concluded that in assessing the appropriate stance of monetary policy, the committee will continue to monitor the impact of new information on the economic outlook. If risks arise that could impede the achievement of the goals, the committee will be prepared to adjust the monetary policy stance as appropriate. The committee's assessment will consider a wide range of information, including labor market conditions, inflation pressures and expectations, as well as financial and international developments. Unlike the September decision, this 25 basis point rate cut received unanimous support from all voting members.
Journalist Nick Timiraos, known as the 'Fed's mouthpiece,' commented that the statement from the Federal Open Market Committee has changed little compared to the September meeting. The biggest difference is that this decision was unanimously approved. Analyst Smialek noted that the statement provided almost no clear signals about future rate cuts and did not comment in any way on this week's U.S. elections. However, this is not surprising as the Fed operates independently of politics and seeks to avoid discussing partisan issues.
Analyst Chris Anstey wrote, 'At present, the Federal Reserve's concerns about the labor market do not seem to have deepened. Overall, their statements do not provide us with many new signals. As before, we need to wait for Powell's comments.' Another analysis pointed out that the most notable part of the statement is the Fed's restraint in expressing too much certainty about inflation progress. There are many data points indicating strong economic growth, combined with a potential incoming president who could lead to inflation, the Fed may enter a wait-and-see mode. The CME Group's 'FedWatch' tool shows that ahead of Fed Chair Powell's speech, the probability of another 25 basis point rate cut in December has decreased from 66.5% before the statement to 63.8%, while the probability of maintaining the current rate in December has risen to around 36%.