Bold interest rate decision November 2024:

The Federal Reserve approved its second straight interest rate cut on Thursday, moving at a less aggressive pace than before but continuing its efforts to adjust monetary policy.

Following September’s big half-percentage-point cut, the Federal Open Market Committee cut its benchmark bid rate by a quarter of a percentage point, or 25 basis points, to a target range of 4.50%-4.75%. The rate sets what banks charge each other for overnight loans, but often affects consumer debt instruments such as mortgages, credit cards and auto loans.

Markets had widely expected the move, which was telegraphed both at the September meeting and in follow-up remarks from policymakers since then. The vote was unanimous, unlike the previous move that produced the first “no” vote by a Fed governor since 2005. This time, Governor Michelle Bowman agreed to the decision.

The post-meeting statement reflected a few adjustments in how the Fed views the economy. Among them was a changed view of how it assesses efforts to reduce inflation while supporting the labor market.

“The committee assesses that the risks to achieving its employment and inflation targets are roughly balanced,” the document said, a change from September, when it noted “greater confidence” in the process.

Fed officials have justified the easing of policy as they believe that supporting employment is becoming at least as much of a priority as stopping inflation.

On the labor market, the statement said “conditions have generally eased and unemployment has risen but remains low.” The committee again said the economy “has continued to expand at a solid pace.”

Officials have largely framed the change in policy as an attempt to bring the interest rate structure back in line with an economy where inflation is slipping back to the central bank’s 2% target while the labor market has shown some indications of slowing. Fed Chairman Jerome Powell has talked about “recalibrating” policy back to where it no longer needs to be as restrictive as it was when the central bank focused almost exclusively on taming inflation.

Powell will answer questions about the decision at his press conference at 2:30 p.m. ET. The November meeting was pushed back a day due to the US presidential election.

There is uncertainty about how far the Fed will go with cuts as the macro economy continues to post solid growth and inflation remains a stifling problem for US households.

Gross domestic product grew 2.8% in the third quarter, less than expected and slightly below the level of the second quarter, but still above the historical trend for the US of around 1.8%-2%. Preliminary tracking for the fourth quarter points to growth around 2.4%, according to the Atlanta Fed.

In general, the labor market has held up well. However, non-farm payrolls rose by just 12,000 in October, although the weakness was partly due to storms in the Southeast and labor strikes.
The decision comes amid a changing political background.

President-elect Donald Trump scored a stunning victory in Tuesday’s election. Economists largely expect his policies to pose challenges to inflation with his stated intentions for punitive tariffs and mass deportations of undocumented immigrants. In his first term, however, inflation remained low while economic growth, outside the initial phase of the Covid pandemic, remained strong.

Still, Trump was a fierce critic of Powell and his colleagues during his first term in office, and the chairman’s term expires in early 2026. Central bankers steer steadfastly away from commenting on policy issues, but the Trump dynamic could be an overhang for the course of policy ahead.

An acceleration in economic activity under Trump could persuade the Fed to cut interest rates less, depending on how inflation responds.

Questions have arisen about what the “terminal” point is for the Fed, or the point at which it will decide it has cut enough and has its benchmark interest rate at which it neither pushes nor holds back growth. Traders expect the Fed is likely to approve another quarter-point rate cut in December, then pause in January as it assesses the impact of its tightening measures, according to CME Group’s FedWatch tool.

The FOMC indicated in September that members expected another half percentage point in cuts by this year and then another full percentage point in 2025.

September’s “dot plot” of individual officials’ expectations pointed to a terminal rate of 2.9%, which would imply another half percentage point of cuts in 2026.

Even with the US central bank’s interest rate cut, the markets have not responded in kind.

Government interest rates have risen higher since the cut in September, as have mortgage interest rates. The 30-year mortgage, for example, has risen about 0.7 percentage points to 6.8%, according to Freddie Mac. The 10-year government yield has risen almost as much.

The Fed seeks to achieve a “soft landing” for the economy where it can bring down inflation without causing a recession. The Fed’s preferred gauge of inflation most recently showed a 12-month rate of 2.1%, although the so-called core, which excludes food and energy and is generally considered a better long-term indicator, stood at 2.7%.