The Fed cuts rates again

The US Federal Reserve on Thursday lowered its rates by a quarter of a percentage point as expected, welcoming the fall in inflation and the easing of the job market.

This new cut, which places rates in the range of 4.50 to 4.75%, comes after another half-point cut in September, the first since March 2020.

The decision was made unanimously by the 12 voting members of the Fed’s monetary policy committee, the FOMC.

Their meeting began on Wednesday – and not Tuesday as is usually the case – due to the presidential election won by Republican Donald Trump.

Labor market conditions have generally been easing for several months, after a period of labor shortage which contributed to pushing prices upwards.

As for inflation, which the Fed brought down by raising rates to slow demand, it has made progress in returning to the 2% target, […] but remains high.

It fell in September to its lowest level since February 2021, to 2.1% over one year, according to the PCE index, favored by the Fed.

To slow it down, the American Federal Reserve raised its rates to their highest since the early 2000s, and kept them at that level for more than a year, until September.

Into the unknown with the return of Donald Trump

Donald Trump has promised to impose widespread increases in customs duties, which risks causing inflation to rebound.

The election result reduced the possibility of a further decline in the next meetingsestimate Samuel Tombs and Oliver Allen, economists for Pantheon Macroeconomics.

The result of the American presidential election, which saw the victory of former President Donald Trump, will not have no short term effect on the decisions taken by the American central bank in terms of monetary policy, the president of the institution, Jerome Powell, assured Thursday at a press conference.

We don’t know what the timing and type of reforms will be and so, no, we don’t know what the effects on the economy might be. We don’t guess, we don’t speculate, we don’t assume.

Tumultuous relationships

Jerome Powell, who was chosen in 2012 by former Democratic President Barack Obama to join the Board of Governors of the Fed, was promoted to president in 2018 by Donald Trump.

However, he then vehemently criticized the actions of the Fed and its president, independent of political power, because they did not lower rates enough for his liking.

Despite this tumultuous relationship, and his desire to influence the Fed’s decisions, Donald Trump signaled in July that he could let Jerome Powell serve the end of his term as head of the Fed, in 2026.

Jerome Powell also assured Thursday that he would not resign if President Donald Trump asked him to do so. NonMr. Powell simply replied when journalists asked him if he thought he would be legally obliged to leave if requested by the president.

He could even remain governor of the Fed until 2028, these two mandates having distinct terms.

Solid economic activity for several months

Washington recently released a series of indicators that demonstrate solid economic activity, but moving away from post-COVID euphoria.

Generally speaking, the American economy seems quite resilient and the job market still very goodsaid Jim Bullard, former president of the St. Louis Fed.

However, job creation in October was at its lowest since December 2020, due to the hurricanes that hit the country and several strikes, notably at Boeing.

For Jim Bullard, now dean of the Daniels School of Business at Purdue University, the Fed has achieved a soft landing : a drop in inflation without causing a recession.

The Federal Reserve did not update its economic forecasts this time. They will be updated in December.

Across the Atlantic, the Bank of England (BoE), which also met on Thursday, lowered its key rate by a quarter of a point, for the second time this year, to 4.75%.