The Federal Reserve went months without dropping its key interest rate in 2023 and 2024. Now it has cut the rate for the second straight meeting.
On Wednesday, the Fed cut its key interest rate for a second time this year, bringing the rate down to about 3.9%, from about 4.1%. 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 Wednesday. “More recent indicators are consistent with these developments.” With unemployment data unavailable through the government because of the shutdown, the Fed is watching private-sector figures instead.
The central bank had raised its rate to roughly 5.3% 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, according to a report from The Associated Press.
The move comes amid a fraught time for the central bank, with hiring sluggish and yet inflation stuck above the Fed’s 2% target. The Fed is navigating without the economic signposts it typically relies on from the government, including monthly reports on jobs, inflation and consumer spending, according to the AP report. The Fed has signaled it may reduce its key rate again in December but the data drought raises the uncertainty around its next moves.
Fed Chair Jerome Powell told reporters there were “strongly differing views about how to proceed in December” at the policy meeting and a further reduction in the benchmark rate is not “a foregone conclusion.”
On Wednesday, the Fed also said it would stop reducing the size of its massive securities holdings, which it accumulated during the pandemic and after the 2008-2009 Great Recession. The change, to take effect Dec. 1, could over time slightly reduce longer-term interest rates on things like mortgages but won’t have much impact on consumer borrowing costs, the AP reported.
Two of the 12 officials who vote on the Fed’s rate decisions dissented, but in different directions. Fed governor Stephen Miran, President Trump’s most-recent appointee to the board, was in favor of a half-point cut for the second straight meeting. Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, preferred no change to the Fed’s rate.
