The Federal Reserve (FED) cut interest rates Wednesday afternoon for a second month in a row, the lowest since pre-pandemic times.
The Federal Open Market committee voted 10-2 to lower interest rates to between 3.75% to 4%, a quarter lower from last month’s range of 4% to 4.25%.
FED chairman Jerome Powell said the cuts were intended to bring inflation to a “neutral” level, not high or low, and that future stabilization or destabilization will factor into future cuts.
These cuts come amidst pressure from President Trump and more tariff announcements.
Additionally, the now four-week long government shutdown has prevented most economy-related data collection, including unemployment rates.
What are interest rates?
According to the U.S. bank, interest rates are the, “percentage that dictates how much interest you’ll pay or earn on a financial product.” Higher interest rates increase the rate you’ll pay when borrowing money, while lower interest rates lower the amount spent.
Federal interest rates are lowered when economic inflation increases, as to lower costs and encourage buyers.
Future Cuts Impact
When asked about if the Fed would further reduce interest rates in December, Powell said he was uncertain.
“If you asked me could it affect … the December meeting, I’m not saying it’s going to, but yeah, you could imagine that. You know, what do you do if you’re driving in the fog? You slow down,”Powell said.
However, Powell also said a December reduction is not a “foregone conclusion” and policy is not on a “preset course.”
According to Reuters, inflation rose this year from 2.3% in April to 2.7% in August, with it predicted to rise to 3% at the end of this year.
Powell claimed tariffs caused rising inflation rates, as certain goods have increased in price.
Goldman Sachs, one of the largest multinational investment banks, released a report saying they expect another cut in December, as their data suggests weakness in the U.S. job market “is genuine” and that employment rates are still below pre-pandemic levels.
Presidential Pressure
Before the announcement, Trump called FED chairman Jerome Powell “Jerome ‘Too Late’ Powell,” in a speech in South Korea during the CEO Summit of the APEC grouping.
He also said, “We’re not going to have a Fed that’s going to raise interest rates because they’re worried about inflation in three years from now,”
These comments come as Trump has increasingly criticized Powell for not lowering rates sooner, saying the U.S. followed behind its European counterparts in economic recovery.
Recent tariffs placed against U.S. allies and trading partners, including China, Canada, and E.U. countries have increased taxes for many American households.
Government Shutdown
The government shutdown has stopped nearly all economic data collection. When asked if this is a concern amidst the cuts, Powell said he’s uncertain how data collection will impact the realities faced in American homes.
“It’s really hard to say. December’s… meeting is six weeks away. We just don’t know what we’re going to get,” Powell said. “If there is a very high level of uncertainty, then, you know, that could be an argument in favor of caution about moving, but we’ll have to see how it unfolds.”
As of Nov. 5th, this has become the longest government shutdown in recent U.S. history, causing a lack of funding towards many federal programs, including SNAP and the Affordable Care Act.
