In Line with Expectations.. The "Fed" Lowers Interest Rates by 25 Basis Points for the Third Time

SadaNews - The U.S. Federal Reserve has lowered interest rates by 25 basis points for the third consecutive time to support the U.S. labor market after signs of cracks appeared, taking advantage of the relatively stable inflation in the United States.

The Federal Open Market Committee voted today, Wednesday, by a majority of 9 votes to 3 in favor of reducing the benchmark interest rate to a range of 3.5% to 3.75%, marking the third reduction in borrowing rates since Donald Trump assumed the presidency, after keeping it unchanged for five consecutive meetings.

The Federal Reserve stated in the accompanying statement that available indicators suggest economic activity is expanding "at a moderate pace", job gains have "slowed" this year, and the "unemployment rate has risen slightly through September." It emphasized that "the latest indicators are consistent with these developments", noting that inflation "remains somewhat high".

One Rate Cut Expected in 2026

Updated quarterly forecasts from monetary policy officials, known as the "dot plot", revealed that Federal Reserve officials maintained their expectation of an average of one interest rate cut next year. They also expected one rate cut in 2027.

However, the expectations among Federal Reserve officials regarding interest rates remained sharply divided. Seven officials indicated their preference to keep rates unchanged throughout 2026, while eight others expressed support for at least two cuts.

Officials raised their average growth forecasts for 2026 to 2.3%, compared to 1.8% in September. They also projected inflation to decrease to 2.4% next year, down from 2.6% in their quarterly forecasts issued in September.

The U.S. central bank confirmed that regarding the study of the extent and timing of additional adjustments to the target range for the Fed’s financing rate, the committee will "carefully evaluate incoming data, changing forecasts, and the balance of risks".

The Federal Reserve's decision today comes amid delays and absences of official economic data due to the longest government shutdown experienced in the United States - extending throughout October and a large portion of November - which led to the cancellation of inflation and jobs reports for October, contributing to deepening the divide among Federal Reserve officials regarding today’s decision.

Uncertainty Amid High Risks

The U.S. central bank emphasized in its statement today that the level of uncertainty surrounding the forecasts "remains high".

The "Fed" confirmed that the monetary policy committee is attentive to risks facing both sides of its dual mandate, adding that the committee views negative risks to employment as having "increased" in recent months.

The "Fed" is currently witnessing a rare divide among monetary policy committee members between two teams; one concerned with entrenched inflation at high levels, while the second team is worried about cracks in the American labor market.

Regarding monetary policy officials opposing today’s decision, the Federal Reserve revealed that Stephen Miran preferred to lower the target range for the interest rate by half a percentage point; while Austan Goolsbee and Jeffrey Schmid saw no reason to make any changes to the target range for the interest rate in Wednesday's meeting.

This is the first time that 3 Federal Reserve officials have opposed the decision since 2019, according to data compiled by Bloomberg.

Federal Reserve officials believe that after lowering interest rates twice this fall, and by 1.5 percentage points over the past fifteen months, any further cut will bring the Fed’s financing rate closer to a level that could stimulate economic activity, which many of them are seeking to avoid.

Today’s step by the Fed came in agreement with prevailing expectations in the markets before the decision, as traders viewed the likelihood of an interest cut today as exceeding 90%, especially after the statement by New York Fed President John Williams, seen as close to Powell, that he sees room for a cut "in the near term".

A few minutes before the Fed's decision was announced, White House economic advisor Kevin Hassett stated that a 25 basis point rate cut would be a "small step" in the right direction, adding that the Fed "will likely need to do more regarding the interest rates." Hassett - who is closest to winning Trump's nomination for the Fed presidency - had indicated in statements yesterday that he sees wide scope for the Fed to significantly lower the benchmark interest rate.

Job cuts announced in November declined, although some of the largest U.S. companies, such as "Amazon" and "Verizon Communications", made headlines with plans to reduce staff numbers.

There was little change in consumer spending during September, while the Fed's preferred inflation gauge rose slightly to 2.8%, nearly a full percentage point above the central bank's target.