(qlmbusinessnews.com Fri. 8th Nov, 2024) London, UK —
US Federal Reserve Cuts Interest Rates as Trump Presidency Brings Economic Uncertainty.
The United States Federal Reserve has announced a second consecutive cut to its key interest rate, adjusting the lending rate to a range of 4.5%-4.75%. This move comes amid growing economic uncertainty following Donald Trump's recent election victory.
The decision, following the Fed’s first rate reduction in over four years this past September, signals its cautious optimism that inflation is finally stabilising. Analysts have anticipated further rate reductions, but concerns are mounting over Trump’s policy proposals, which include substantial tax cuts, immigration restrictions, and heightened tariffs. These measures could pressure inflation and increase government borrowing, adding complications to future rate predictions.
Reflecting these concerns, US debt interest rates have already spiked, highlighting market anxiety over economic policy directions. Across the Atlantic, the Bank of England echoed similar concerns, cautioning that inflation might slow the pace of borrowing cost reductions.
Quilter Investors strategist Lindsay James commented, “Expectations for future rate cuts have significantly lessened in both the US and the UK as policymakers are proceeding with caution in light of the new administration’s economic agenda.”
Fed Chairman Jerome Powell noted that it remains too soon to gauge the full impact of President Trump's proposals on the economy. “With the administration still in its early days, we lack a full picture of upcoming policies or their implementation timelines,” Powell said. He reassured that for now, the Fed’s near-term decisions will remain unaffected by the election’s outcome.
Trump’s presidency may bring new political pressures for Powell, who was appointed by Trump yet faced criticism from the president. Powell firmly stated he would not step down, asserting that legal provisions protect the Fed's independence from direct White House influence.
Under Powell’s leadership, the Fed raised rates aggressively in 2022 to counter surging inflation, moving from near-zero rates to approximately 5.3% by July 2023—the highest in over two decades. These hikes led to higher public borrowing costs on mortgages, credit cards, and loans.
The recent rate cut of 0.25 percentage points, expected by most economists and unanimously supported, reflects Fed officials’ confidence that inflation, which stood at 2.4% in September 2023, is now stabilising after reaching 9% in mid-2022.
Powell emphasised the Fed’s commitment to both price stability and job market health. While previous concerns about rising unemployment have diminished, job growth data has remained modest due to factors such as hurricanes and strikes.
Further rate cuts are anticipated, though Powell refrained from providing detailed guidance on the pace and extent of these reductions. “We believe in finding the right balance,” he said, “but with today’s uncertainties, providing specific guidance would be premature.”
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