Federal Reserve cuts key interest rate
The Federal Reserve cut its key interest rate Wednesday for a second time this year as it seeks to shore up economic growth and hiring even as inflation stays elevated.
“Job gains have slowed this year, and the unemployment rate has edged up but remained low through August,” the Fed said in a statement issued on Wednesday. “More recent indicators are consistent with these developments.” The government hasn’t issued unemployment data after August because of the shutdown. The Fed is watching private-sector figures instead.
Fed chairman Jerome Powell will speak at 5.30am AEDT.Credit: Bloomberg
Wednesday’s decision brings the Fed’s key rate down to about 3.9 per cent, from about 4.1 per cent. The central bank had cranked its rate to roughly 5.3 per cent in 2023 and 2024 to combat the biggest inflation spike in four decades. Lower rates could, over time, reduce borrowing costs for mortgages, auto loans, and credit cards, as well as for business loans.
The move had been expected by markets. In mid-afternoon trade on Wall Street, the S&P 500 and Dow Jones are both up 0.3 per cent and the Nasdaq climbed 0.5 per cent.
The move comes amid a fraught time for the central bank, with hiring sluggish and yet inflation stuck above the Fed’s 2 per cent target. Compounding its challenges, the central bank is navigating without the economic signposts it typically relies on from the government, including monthly reports on jobs, inflation and consumer spending, which have been suspended because of the government shutdown. The Fed has signalled it may reduce its key rate again in December but the data drought raises the uncertainty around its next moves.
The Fed typically raises its short-term rate to combat inflation, while it cuts rates to encourage borrowing and spending and shore up hiring. Right now its two goals are in conflict, so it is reducing borrowing costs to support the job market, while still keeping rates high enough to avoid stimulating the economy so much that it worsens inflation.
More to come
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