US Federal Reserve reduces interest rates as inflation fears continue
(MENAFN) The US Federal Reserve has lowered its benchmark interest rate by 0.25 percentage points to a range of 3.75%–4%, marking its second consecutive rate cut despite limited economic data caused by the ongoing government shutdown.
Economists said the shutdown, now approaching a month, has delayed official labor statistics, leaving central bankers “flying blind” as they assess the economy.
The rate cut brings borrowing costs to their lowest level in three years, as policymakers seek to bolster a weakening job market. “Job gains have slowed this year,” the Fed said in a statement, noting that unemployment has “edged up.”
At a press conference, Fed Chair Jerome Powell described the labor market as “less dynamic and somewhat softer,” though he said the slowdown is not yet worsening.
Two committee members dissented from the decision: one favored a larger half-point reduction, while another wanted to keep rates unchanged.
The US economy lost an estimated 32,000 jobs in September, according to private payroll data, while inflation slowed slightly to 3% year-over-year — just above the Fed’s 2% target. Powell told reporters, “Inflation away from tariffs is actually not so far from our 2% goal.”
The central bank also announced it will halt the reduction of its balance sheet — which includes government and mortgage-backed securities — starting Dec. 1, ending a process begun to unwind pandemic-era stimulus measures.
Markets had expected another rate cut in December, but Powell warned that further easing is “not to be seen as a foregone conclusion.”
“Future moves are becoming more contentious,” said one analyst, adding that the Fed is likely to proceed cautiously. Powell himself likened the situation to “driving in the fog,” saying policymakers would “slow down” and rely on “every scrap of data” available before making further decisions.
President Donald Trump has continued to pressure the Fed for deeper cuts and hinted he may name a replacement for Powell before his term expires next May.
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