The Federal Reserve System on Thursday, November 7, decided to cut interest rates for the second time in the current year.
The second lowering of borrowing costs by the central bank of the United States is characterized by a more moderate scale compared to a similar action by the financial regulator in September. At the same time, the Fed is demonstrating what can be described as a kind of sustained approach to consistently easing monetary policy, which has been tight over the past few years to counteract rising inflation.
On Thursday, the Federal Open Market Committee lowered its benchmark overnight borrowing rate by a quarter percentage point to a target range of 4.5%-4.75%.
It is worth noting that the markets were expecting the mentioned decision of the central bank of the United States. In recent weeks, the policymakers relatively clearly stated what pace of monetary policy easing the US financial regulator would adhere to.
It is worth mentioning that in September, the Fed cut its benchmark interest rate by a half percentage point. For many analysts, this decision came as a surprise because they assumed that as part of monetary policy easing, the central bank of the United States would act less aggressively.
It is also worth noting that the November vote on lowering the cost of borrowing was unanimous. At the same time, in September, Governor Michelle Bowman was against large-scale interest rate cutting.
Fed Chairman Jerome Powell, commenting on Thursday’s decision to lower borrowing costs, said that he and his colleagues continue to be committed to achieving the two main goals of the central bank of the United States in the context of the current configuration of economic reality. In this case, it is implied that the US financial regulator seeks to ensure price stability and full employment.
Jerome Powell stated that inflation in the United States has eased substantially. Also, according to him, economic activity in the US continues to show growth at a solid pace. In the relevant context, strong data on the dynamic of gross domestic product (GDP) and reports on the favorable state of affairs in the labor market were meant.
Jerome Powell said that last year, improved supply conditions supported the economic system of the United States. According to him, payroll gains slowed down partly due to the effects of the hurricanes last month. He also noted that the unemployment rate in the United States is currently noticeably higher than a year ago, but remains low at 4.1%.
According to the head of the US central bank, the labor market is nowadays not a source of significant inflationary pressure. He also noted that the present labor conditions are less tight compared to the configuration that was observed before the outbreak of the coronavirus pandemic. It is worth noting that Jerome Powell’s previous statements about the situation in the labor market contained assertions that the situation in this space has returned to the circumstances that were before the mentioned pandemic.
The head of the Fed said that overall inflation in the United States has approached the financial regulator’s goal of 2%. At the same time, he separately noted that core inflation still continues to be somewhat elevated.
Also, on Thursday, Jerome Powell stated once again that the central bank of the United States is not on any pre-set course, and rate decisions will be done meeting-by-meeting. Separately, he mentioned the danger of acting too quickly or too slowly in the context of changing monetary policy. According to him, haste in this case may become a factor hindering progress in decreasing inflation. At the same time, Jerome Powell underlined that too slow action could unduly weaken economic activity and employment.
The head of the Fed on Thursday, answering journalists’ questions, said that in the near term, the election of the president of the United States will not have any impact on the decisions of the US financial regulator. Also, as part of this communication, Jerome Powell stated that he would not leave his post if Donald Trump asked him to do so. Moreover, a negative answer was given to the question of whether he is legally not required to leave.
The head of the Fed did not make any statements regarding the most likely decision in December in the context of monetary policy. This position corresponds to the approach in which the central bank of the United States, as part of making appropriate decisions, focuses on the most up-to-date data on the state of affairs in the economic space.
