Federal Reserve cuts US interest rates by 25 basis points as Trump win clouds future path

'We don't guess, we don't speculate, and we don't assume,' Jerome Powell says

The Federal Reserve cut US interest rates by 25 basis points on Thursday, the central bank's second rate cut in a row, as it continues its so-called recalibration to support economic growth amid falling inflation.

Thursday's decision lowers the Fed's target range to between 4.50 per cent and 4.75 per cent.

Fed Chairman Jerome Powell told reporters that he remains confident that “with an appropriate recalibration in our policy stance” that economic growth would remain strong and inflation would continue to moderate.

Mr Powell also said that risks to achieving its inflation and maximum employment goals are “roughly in balance”.

The Fed's decision comes less than 48 hours after Donald Trump's decisive 2024 presidential victory, casting doubt over the trajectory of future rate cuts. Mr Trump's tariff policy, tax cuts and pledge to deport immigrant workers are anticipated to reignite inflation.

Mr Powell said the results of the election will not have any effect on the Fed's decisions in the near term, noting that it remains unclear just how Mr Trump's policies – should they be enacted – will affect the economy.

“We don't guess, we don't speculate, and we don't assume,” he said.

Powell says little on policy path

Mr Powell also declined to say what the path of monetary policy could look like, otherwise known as forward guidance, only going so far as to say it could change depending on new data.

“We're in the process of recalibrating from a fairly restricted level at 5.33 per cent. After today's move, we're down 75 basis points and we're asking ourselves, is that where we need to be,” he said.

After keeping rates at a 22-year high for more than a year, the Fed began its easing cycle in September as inflation continues to moderate. The Fed's preferred inflation metric fell to 2.1 per cent in September, barely above their long-term 2 per cent target range. Core inflation, meanwhile, was steady at 2.7 per cent.

The US central bank is now moving closer to the neutral rate, the level at which interest rates neither contract nor expand the economy.

When asked by one reporter why the Federal Open Market Committee adjusted some of the language in its statement, Mr Powell said it was because the Fed had “met the test” that it gained enough confidence to begin cutting rates.

“If we leave it in, then it's new forward guidance. … The point is we have gained confidence,” he said.

Wells Fargo currently forecasts the Fed to lower its benchmark rate to between 3 per cent and 2.5 per cent by the end of next year. “However, the FOMC may not want to ease policy by that much if new tax cuts and tariffs cause inflation to shoot higher over the next couple of years. Thus, we think the risks to our fed funds rate forecast are skewed to the upside,” economists Jay Bryson and Michael Pugliese wrote to clients.

Markets anticipate that the Fed will cut rates by a further 25 basis points in December, followed by three cuts next year, according to the CME Group's FedWatch tool.

“On the margin, those additional rate cuts may be questioned given the prospects of additional tariffs, making prior tax cuts permanent, immigration restrictions, and fiscal spending on which Trump campaigned,” K Sean Clark, chief investment officer at Clark Capital Management Group, wrote in a note.

The UAE Central Bank cut its benchmark interest rate by 25 basis points on Thursday to improve business conditions as inflationary pressures ease.

The second consecutive rate cut for the Fed arrives as the US central bankers continue what they call a gradual approach to rate cuts in which they issue smaller rate cuts so they can assess the impact on the economy.

Mr Powell previously used the word “recalibration” in September to describe the Fed's policy pivot, which he said would help the Fed to keep the economy strong while continuing to tamp down on inflation.

Economic growth remains robust, with gross domestic product up 2.8 per cent in the third quarter. Consumer spending, which accounts for roughly two-thirds of economic activity, is also strong, rising 0.5 per cent in September.

Meanwhile, the US labour market continues to show signs that it is moderating at a healthy pace. The current rate of unemployment remains at a historically low 4.1 per cent. The total number of job openings fell to its lowest level since September 2021, a survey released by the Bureau of Labour Statistics last month showed.

The latest batch of economic data has led to increasing confidence that the Fed is close to – if not having already achieved – a soft landing, the ideal scenario in which inflation is conquered without an unexpected downturn in the economy.

What was not expected to play a significant role in the Fed's decision this week was the total amount of job gains in October, which fell sharply, largely due to a Boeing machinists' strike and two hurricanes.