The US Federal Reserve’s Federal Open Market Committee (FOMC), led by Fed Chair Jerome Powell on Wednesday cut the key rate by 25 basis points. The rate now stands between 3.5 percent and 3.75 percent, the lowest level in nearly three years. “In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-1/2 to 3-3/4 percent,” said the Fed release.“Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated,” it said.This reduction would support the world’s largest economy as employment conditions deteriorate, though officials remain concerned about ongoing inflation as US President Donald Trump’s tariffs impact supply chains.The Federal Reserve was widely expected to implement its third successive interest rate reduction this week, despite anticipated disagreements among policy officials during their two-day conference. Markets largely expected another quarter-point cut following the Federal Reserve’s Tuesday-Wednesday meeting.“It’s difficult to recall a time when the Federal Open Market Committee has been so evenly divided about the need for additional rate cuts,” said economist Michael Pearce of Oxford Economics, referring to the Fed’s rate-setting committee according to an AFP report.This division emerges as high inflation suggests prudence in rate reductions, whilst employment market risks provide justification for lower rates, he noted in a recent analysis. The recent government closure has created additional challenges, as it has resulted in a lack of official employment statistics for October and November.The Federal Reserve’s decision-making committee comprises 12 individuals with voting rights. This includes seven governors, the president of New York’s Federal Reserve, and rotating presidents from other reserve banks, who collectively determine interest rate policies through majority voting.The Federal Reserve maintains dual objectives: achieving maximum employment whilst ensuring price stability. These aims occasionally conflict with each other. When interest rates are reduced, economic activity tends to increase, whereas elevated rates generally restrict economic growth and help control inflation.Recent statistical data indicated a deceleration in employment figures. The governmental closure spanning October through mid-November caused delays in releasing more current federal statistics.
