The Federal Open Market Committee approved a second consecutive quarter percentage point reduction in the federal funds rate, lowering the target range to 3.75% to 4%.
In a widely anticipated decision, the Federal Reserve has cut interest rates for the second time in two months. This cut lowers the federal funds rate to a target range of 3.75% to 4%.
The FOMC decision published Wednesday afternoon described economic activity as “expanding at a moderate pace,” while alluding to softness in the labor market as job gains have slowed.
“[T]he unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments,” the statement read.
The FOMC also pointed to the risks of increasing prices, noting that “inflation has moved up since earlier in the year and remains somewhat elevated.”
Rick Wedell, chief investment officer at RFG Advisory, shared his thoughts in the aftermath:
“The Federal Reserve’s 25-basis-point rate cut came as no surprise to markets, which had broadly anticipated the move. However, the two dissents — one favoring no change and another pushing for a deeper 50-basis-point cut — underscore the difficult path the Fed faces as it balances persistent inflation pressures against mounting employment concerns and limited data clarity,” Wedell told InvestmentNews. “The overall tone of the decision suggests heightened concern about downside risks to the economy, particularly rising unemployment. Additionally, the Fed’s decision to pause its balance sheet runoff reinforces the view that policymakers are increasingly cautious and attuned to potential economic softening.”
The September CPI print from the Bureau of Labor Statistics last Friday showed annual headline CPI at 3%, up a touch from 2.9% in August and well above the 2% target maintained by the Fed.
The decision drew two dissents. Fed governor Stephen Miran had backed a half-point cut, while Kansas City Fed President Jeffrey Schmid argued to hold the rate steady.
In September, the Fed lowered its benchmark interest rate by 25 basis points, citing inflation and labor market strain. Questions remain as to whether a third cut is likely in December. According to CME Fedwatch today, there is an 87.5% chance of reducing the target rate another 25 basis points on Dec. 10.
