- The Fed proceeded with its second consecutive interest rate cut this year, bringing the benchmark to 3.75%-4%.
- The central bank remains on guard amid uncertainty in its economic outlook.
Fed Decides Second Interest Rate Cut This Year
The US Federal Reserve pulled the trigger on another interest rate cut in the aftermath of the Federal Open Market Committee (FOMC) meeting this Wednesday. The move signals the benchmark dropping to 3.75%-4%.
The central bank’s decision coincided with most analysts’ expectations of a 25 basis-point reduction. Meanwhile, it marks the second consecutive interest rate cut this year, bringing the numbers to their lowest in nearly three years. During the period, the rates maxed out at 5% between July 2023 to August 2024.
The Fed notably pushed for the adjustment despite insufficient economic data due to the ongoing government shutdown. It particularly made the determination without the latest inflation and job reports.
Nonetheless, the Fed’s latest press release stated that job gains have slowed this year, and the unemployment rate has “edged up but remained low through August.” It claimed that more recent indicators moved within the same trend. Additionally, inflation has been rising since early 2025, and it’s still elevated.
Uncertainty on Economic Outlook
The Fed’s judgment came with a caveat, though. It highlighted that economic uncertainty looms, as inflation is still far from its 2% target for a soft landing.
Hence, the central bank vowed to be attentive to how the market would react to the new rates, particularly the inflation and employment parameters. The institution noted that it’s prepared to adjust the monetary policy if risks crop up, which could set the Fed aback from its “maximum employment” and 2% inflation objectives.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” said the Fed.
How the Votes Went
The press release revealed that 10, including Chairman Jerome Powell, favored the 25 bps interest rate cut. Interestingly, Fed Governor Stephen Miran voted to modify the numbers further down by 50 bps.
On the other hand, Federal Reserve Bank of Kansas City President Jeffrey Schmid proposed for a pause, echoing some analysts’ concerns that moving the dial with insufficient data from key agencies due to the government shutdown would be a gamble as it’s like “flying in a blizzard with a blindfold on” and without other source of guidance as Janney Montgomery Scott’s Chief Fixed Income Strategist Guy LeBas has put it.
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