The US Federal Reserve dismissed concerns about the impact of Donald Trump’s election victory on interest rates and moved ahead with a quarter-point cut on Thursday.
The Fed is just a stone’s throw from the White House, where Democratic President Joe Biden will hand the keys back to Trump following the Republican’s election victory in January.
But as expected, policymakers ignored the political drama on the street and voted unanimously to cut interest rates by 25 basis points to between 4.50 and 4.75 percent, the Fed said in a statement.
“In the near term, the election will have no impact on our policy decisions,” Fed Chairman Jerome Powell told reporters. He said there is still uncertainty about what President-elect Trump’s actual economic agenda will be.
“We don’t speculate, we don’t speculate and we don’t speculate,” he said.
Powell also said he would not resign if asked to leave early by the President-elect, adding that firing any of the Fed’s seven governors is “not permitted under law.”
The U.S. central bank’s rate decision should help push down the cost of mortgages and other loans — welcome news for consumers, who had widely cited the cost of living as a top concern ahead of Tuesday’s vote.
But borrowing costs will also depend on how financial markets think a Trump victory will affect the economy in the longer term, and the Fed will need to adjust interest rates to ensure inflation remains contained.
‘The economy looks quite resilient’
Experts have pointed to the post-pandemic surge in US inflation – which saw consumer prices rise by more than 20 percent – as a major factor in Trump’s victory.
Thursday’s decision adds to a previous rate cut in September, when the Fed started its easing cycle with a massive half-point rate cut, and additional rate cuts planned this year.
The Fed’s preferred inflation gauge eased to 2.1 percent in September, while economic growth remains strong.
The labor market also remains strong overall, despite a massive hiring slowdown last month due to adverse weather conditions and a labor strike.
“Generally speaking, the US economy looks quite resilient, and the labor market still looks very good,” Jim Bullard, longtime president of the St. Louis Fed, told AFP ahead of Election Day.
Bullard, now dean of the Daniels School of Business at Purdue University, predicted a 25 basis point cut this week and another cut of the same size in December.
According to data from CME Group, futures traders have pegged the probability at about 65 percent that the Fed will cut rates by a quarter percentage point next month.
But analysts are divided on what the Fed will do next month.
Fiscal discipline ‘broken down’
With Trump’s victory certain, much still depends on whether Republicans can capture the House of Representatives, as they appear on track to do – giving them control of the White House as well as Congress. There will be a “Red Sweep” in both the houses.
“Markets prefer divided government as a way to control spending and keep the deficit down,” Bullard said.
“The troubling thing for an economist like me is that, in fact, fiscal discipline has broken down for both political parties,” he said.
Trump has repeatedly accused Powell – whom he first appointed to run the US central bank – of working in favor of Democrats, and has suggested that he seek to replace him after his term ends in 2026. Will consider.
The president-elect has also said he would like to have “at least” a say in setting the Fed’s interest rates – something that would contradict the Fed’s existing mandate to act independently of Congress and the White House to combat inflation and unemployment. It is against the mandate.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
