Today, representatives of the US Federal Reserve lowered their target interest rate by a quarter of a point, which was the third decrease in a year, as they focus on strengthening the weakening labor market, which, in their opinion, poses a greater threat to the economy than steadily rising inflation.
The Federal Open Market Committee (FOMC) on Wednesday cut the federal funds rate by 0.25 percentage points to 3.5-3.75 percentage points after declining by a quarter of a percentage point in September and October.
In their economic forecasts, Fed policymakers and governors envisioned a one-time quarter-point rate cut in 2026 and a similar cut next year. According to the average forecast, the unemployment rate will decrease to 4.4% by the end of 2026 from 4.5% at the end of 2025, and inflation will decrease to 2.4% at the end of next year from 2.9% projected at the end of 2025. They forecast gross domestic product growth of 2.3% by the end of next year, compared with 1.7% projected for the end of 2025.
"Short-term risks to inflation are increasing, while risks to employment are decreasing, which creates a difficult situation," the Fed chairman said. Jerome Powell told reporters after the meeting. However, according to him, given that the target rate is currently considered close to "neutral" — which means that monetary policy does not stimulate or restrict the economy — "we have every opportunity to wait to see how the economy develops."
The Fed is largely operating in an information desert, as the partial shutdown of the federal government for 43 days has halted the flow of most economic data, including crucial reports on the labor market and inflation, which are the basis of the Fed's dual mandate to maintain maximum employment and stable prices.
The latest employment report, September data released on November 20, showed job growth of 119,000 more than expected, but this came after an initially reported increase of just 22,000 in August and an equally slow pace of growth since April. Powell said he expects the revised employment data to show even slower hiring growth in recent months.
Before the Fed's rate announcement, CME's FedWatch tool on Tuesday showed the probability of a quarter-point rate cut at 89.6%, compared with 66.9% a month earlier, amid concerns about a slowdown in hiring.
Before the first interest rate cut in September this year, the FOMC kept the target rate unchanged at five meetings this year. Three interest rate cuts at the end of last year combined to result in a 1 percentage point rate cut.
