Fed cuts interest rates again after Trump’s election

The Federal Reserve on Thursday cut benchmark rates by a quarter of a percentage point to between 4.50% and 4.75%, a unanimous decision that markets had been expecting the day after Donald Trump was elected.

The contraction follows a half-percentage point decline in September, the first in this cycle of monetary easing since March 2020.

“Labor market conditions are improving,” while “inflation has made progress toward returning to the 2% target (…) but remains high,” the Fed’s Monetary Policy Committee (FOMC) said in a statement. the results of two meetings. afternoon meeting in Washington.

The decision was made by the FOMC’s 12 voting members, who met on Wednesday rather than on Tuesday as usual because of the presidential election.

Inflation fell in September to its lowest level since February 2021, to 2.1% in 12 months, according to the central bank’s most closely followed PCE index.

The Fed kept rates at their highest levels since the turn of the century to curb inflation. High interest rates mean expensive credit, which discourages consumption and investment and reduces price pressures.

– Tariffs –

Trump has promised new tariffs that could push inflation back up.

“The election result reduces the likelihood of another cut at future Fed meetings,” said Samuel Tombs and Oliver Allen, economists at Pantheon Macroeconomics.

However, the organization’s president, Jerome Powell, said at a press conference after this Thursday’s announcement that the result of the presidential election that returned Trump to the White House would not have a “short-term effect” on the institution’s monetary policy. .

“In the short term, the election will not influence our decisions,” Powell said. “We don’t know what the calendar and type of reforms will be, and therefore we don’t know what the consequences for the economy might be. “We don’t guess, we don’t speculate, we don’t assume,” he concluded.

Powell, elected in 2012 by President Barack Obama to the Federal Reserve Board of Governors, was appointed to lead the institution in 2018 by Trump himself.

But then the Republican president sharply criticized him for not cutting rates enough, even though the Fed is independent of the executive branch.

Trump, despite the clashes, argued in July that he could allow Powell to finish his term in 2026.

In any case, the Fed chairman was candid this Thursday when he said he would not resign before the end of his term even if the president-elect asked him to do so, and added that firing any of the seven central bank governors “doesn’t do it” . This is permitted by law.”

– Sustainable economy –

The latest US economic indicators show robust economic activity.

“Overall, the US economy appears to be fairly resilient and the labor market remains in very good shape,” Jim Bullard, former president of the St. Louis Fed, told AFP.

GDP growth in the third quarter was disappointing but remains well above other developed countries, at 2.8% per annum.

Meanwhile, job creation in October was at its lowest level since December 2020, but the data was largely attributed to hurricanes and several strikes, especially at Boeing.

According to Bullard, dean of the Daniels School of Business at Purdue University, the Fed has achieved a “soft landing” of the economy, that is, containing inflation without a recession.

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