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US cuts interest rates as Trump election raises uncertainty US cuts interest rates as Trump election raises uncertainty
(31 minutes later)
The US central bank has cut its key interest rate again as Donald Trump's election as president raises new uncertainty about the future for borrowing costs.The US central bank has cut its key interest rate again as Donald Trump's election as president raises new uncertainty about the future for borrowing costs.
The cut puts the Federal Reserve's lending rate in the range of 4.5%-4.75%.The cut puts the Federal Reserve's lending rate in the range of 4.5%-4.75%.
It marks the second drop in a row after the Fed lowered rates for the first time in more than four years in September, indicating confidence that price rises were finally stabilising.It marks the second drop in a row after the Fed lowered rates for the first time in more than four years in September, indicating confidence that price rises were finally stabilising.
Forecasters have been expecting borrowing costs to fall further in the months ahead but warned that Trump's plans for tax cuts, immigration and tariffs could keep pressure on inflation and drive up government borrowing, complicating those bets.Forecasters have been expecting borrowing costs to fall further in the months ahead but warned that Trump's plans for tax cuts, immigration and tariffs could keep pressure on inflation and drive up government borrowing, complicating those bets.
Interest rates on US debt have already jumped this week, reflecting those concerns.Interest rates on US debt have already jumped this week, reflecting those concerns.
The decision comes the same day that the Bank of England warned that it could take longer for borrowing costs to fall, warning that inflation could creep higher after last week's Budget.The decision comes the same day that the Bank of England warned that it could take longer for borrowing costs to fall, warning that inflation could creep higher after last week's Budget.
“On both sides of the pond, we are seeing expectations for future rate cuts being scaled back considerably compared to what many had originally hoped for," said Lindsay James, investment strategist at Quilter Investors.“On both sides of the pond, we are seeing expectations for future rate cuts being scaled back considerably compared to what many had originally hoped for," said Lindsay James, investment strategist at Quilter Investors.
"In the US it seems interest rates will stay higher for longer as the Fed will need to tread very carefully until it is better able to assess the true impact of Trump’s plans.” "In the US, it seems interest rates will stay higher for longer as the Fed will need to tread very carefully until it is better able to assess the true impact of Trump’s plans.”
The Fed's key rate - what it charges banks for short-term borrowing - sets a benchmark for lending across the economy, influencing how banks set interest rates for credit cards, mortgages and other loans. Fed chairman Jerome Powell said on Thursday that it was too early to tell how the new administration's agenda might affect the US economy.
Those borrowing costs have been hovering at the highest rates in two decades, after the Fed rapidly hiked rates in response to inflation in 2022, bringing its key rate to roughly 5.3%. "It's such an early stage - we don't know what the policies are, we don't know when they will be implemented," he said. "In the near term, the election will have no effects on our policy decisions."
The cut announced on Thursday, which was widely expected and unanimous, lowered rates by 0.25 percentage points. As well as raising uncertainty about future rate decisions, the election may also pose new political challenges for Mr Powell, who was named Fed chairman by Trump but subsequently became a frequent target of his criticism.
The Fed had started cutting rates in September as confidence increased that the pace of price rises in the US was getting under control and job gains were starting to slow. US media have reported that Trump allies have been looking at ways for the White House to assert more control over the Fed.
On Thursday, Mr Powell hit back at suggestions that the incoming president might have the power to shake up top personnel at the bank.
He said he would not step down if Trump asked and said that it is "not permitted under law" for the White House to force him out.
Mr Powell has faced heavy scrutiny over the last few years, as prices started surging in 2022.
The bank responding by hiking rates rapidly that year, ultimately raising them from near zero to roughly 5.3% as of July - the highest rate in more than two decades.
Those rises affected the public in the form of higher borrowing costs for credit cards, mortgages and other loans.
The Fed started to reverse course in September, slashing rates by a bigger-than-usual 0.5 percentage points, saying it was confident that the pace of price rises in the US was stabilising.
Inflation in the US stood at 2.4% in September, down from more than 9% in June 2022, according to the latest official figures.Inflation in the US stood at 2.4% in September, down from more than 9% in June 2022, according to the latest official figures.
Concerns had flared earlier this year about rising unemployment, but those quietened in September, after data showed an unexpectedly strong burst of hiring. The cut announced on Thursday, which was widely expected and unanimous, lowered rates by a further 0.25 percentage points.
Mr Powell said on Thursday officials remained equally focused on keeping prices stable and the job market healthy.
Though concerns flared earlier this year about rising unemployment, those quietened in September, after data showed an unexpectedly strong burst of hiring.
However, the latest figures showed almost non-existent job growth in October, when the country was grappling with hurricanes and strike actions.However, the latest figures showed almost non-existent job growth in October, when the country was grappling with hurricanes and strike actions.
Federal Reserve chairman Jerome Powell said on Thursday officials were equally focused on keeping prices stable and the job market healthy, echoing language used in their last meeting. He said officials expected to continue to cut rates, but how fast and how far remained to be seen, but resisted questions seeking more precise guidance.
He said at a press conference after the rates announcement that with appropriate shifts in the Fed's policy, "strength in our economy and the labour market can be maintained, with inflation moving sustainably down to 2%". "We don't think it's a good time to be doing a lot of further guidance - there's a fair amount of uncertainty," he said. "The point is to find the right pace and destination as we go."