Federal Reserve Reduces Benchmark Interest Rate

On Thursday, the Federal Reserve reduced its benchmark interest rate by 25 basis points, as anticipated, moving it to a new range of 4.50% to 4.75%. This adjustment is expected to modestly ease borrowing costs across credit cards, loans, and auto financing.

This cut follows a larger 50-basis-point reduction in September, which had already brought rates down from a high of 5.25% to 5.50% earlier this year.

The Fed initiated this rate-cutting cycle in September to stimulate economic growth amidst moderating inflation and a softening labor market. Before these cuts, the central bank raised rates for two years to control inflation, which peaked at 9.1% in June 2022. Since then, inflation has moderated to 2.4%, getting closer to the Fed's 2% target.

During a press briefing, Chair Jerome Powell, when asked how Trump’s election might influence Fed policy, stated that "in the near term, the election will have no effects on our (interest rate) decisions." He also addressed whether he would step down if requested by Trump, responding, "No." Powell emphasized that Trump lacks the authority to fire or demote him, adding that such an action would “not be permitted under the law.”

In September, Powell suggested that another 25-basis-point rate reduction could occur before 2025, depending on economic trends. However, on Thursday, he avoided committing to future moves, keeping possibilities open for a quarter-point cut in December and four cuts projected for 2025.

Powell stated that the Fed will continue to analyze economic data to determine the “pace and destination” of interest rate adjustments, working to recalibrate current restrictive monetary policy. This shift reflects a significant slowdown in inflation over the past year, now nearing the Fed’s 2% target. As policies from the incoming administration start to manifest, Powell mentioned that the Fed will evaluate their potential impacts on stable inflation and maximum employment.

Wall Street Reactions to FOMC Meeting

After the Fed's meeting and Jerome Powell's announcements, several Wall Street firms shared their views on the future direction of monetary policy:

Citi

• “Powell reminded markets that the Fed mandate is full employment and stable prices. Even if GDP growth exceeds expectations, policy rates will still trend toward neutral.”
• “This message was dovish compared to recent hawkish market pricing, and we anticipate further rate cuts at each upcoming meeting. A pause in December is unlikely, with a 50bp cut likely if the November jobs report shows a quicker than expected softening labor market.”

Morgan Stanley (NYSE:MS)

• “Chair Powell's comments align with our forecast for continued 25bp cuts. The Committee is confident in the downward trend of inflation and is aware of base effects and residual seasonality affecting future prints. The tone was balanced, viewing risks to employment and inflation as equal, and maintaining a restrictive policy.”

Macquarie

• “Our base case expects a further 25 bps cut in December. However, the timing and pace of future cuts have become uncertain. In December, the committee's rate projections may shift somewhat hawkishly, reflecting reduced downside risks since September’s meeting.”

Nomura

• “We anticipate 25bp cuts in December and March, with a pause in January. We expect tariff-driven inflation by mid-2025 to lead to a prolonged halt in the Fed’s easing cycle.”

Bank of America

• “Chair Powell emphasized the Fed's steady course towards lowering rates to a neutral level, indicating another cut in December is likely, as the market expects.”