The Fed lowers interest rates for the second time since March 2020 by cutting them by 25 basis points

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The Federal Open Market Committee (FOMC) of the United States Federal Reserve (Fed) decided this Thursday to lower interest rates by 25 basis points, leaving them within the target range of the 4.50% to 4.75%.

This reduction follows the one decreed last September of half a point, when the price of money was reduced for the first time since March 2020. In its statement, the entity has stressed that the risks to optimize employment and inflation are “more or less balanced.”

“Recent indicators suggest that economic activity has continued to grow at a solid pace. Since the beginning of the year, the labor market has generally lost steam, and the unemployment rate has risen, although it remains low. Inflation has “continued to move towards the 2% objective set by the Committee, but it remains somewhat high,” the Fed summarized.

The FOMC has indicated that when modifying the reference rate it will be attentive to incoming data, the evolution of the macroeconomic environment and the balance of risks.

In this sense, the issuing institute has assured that it will be “prepared” to adjust the rates if necessary, for which the readings of the labor market, inflation, as well as the effects derived from international and financial events will be analyzed.

This time all the members of the Committee have voted in favor of the reduction of a quarter of a point. On the previous occasion, Michelle Bowman, belonging to the ‘hawkish’ wing of the Fed, that is, in favor of a less accommodative monetary policy, refused to give her approval to the 50-point cut in September.

On the other hand, the Fed will continue with its plans to reduce the balance sheet, reinvesting the principal of the debt that matures between Treasury bonds and mortgage-backed securities.

GDP, UNEMPLOYMENT AND INFLATION

The economy of the world’s leading power experienced annualized growth of 2.8% of its GDP in the third quarter of 2024 compared to 3% in the previous quarter.

Regarding the US labor market, 12,000 non-agricultural jobs were created last October, well below the 254,000 in September due to the impact of the hurricanes in the south of the country, although unemployment remained at 4, 1%. Thus, the US chained 46 consecutive months of creating jobs.

For its part, the personal consumption expenditure price index, the Fed’s preferred statistic to monitor inflation, stood at 2.1% in September, two tenths less than in the previous month. The monthly rate recorded a rebound to 0.2% from the previous 0.1%. The underlying variable closed at 2.7% year-on-year, unchanged since July.