The Federal Reserve made its third consecutive interest rate cut on Wednesday, reducing its benchmark rate by a quarter of a percentage point. The move, widely anticipated by investors and financial markets, brings the federal funds rate to a target range of 4.25 percent to 4.50 percent. Since beginning its rate cuts in September, the Fed has now lowered rates by a total of 100 basis points, or one percentage point.
This action follows the significant economic shifts brought about by President-elect Donald Trump’s November election victory. Business, investor, and consumer confidence have surged, with expectations for strong economic growth in the coming years. Trump’s promises of tax cuts, regulatory relief, and pro-fossil fuel energy policies have fueled optimism among businesses and households alike.
However, Trump’s proposed tariff increases have raised concerns among some economists. While some predict that tariffs could lead to inflation, most analysts believe the impact would be limited to a one-time price increase on certain imports, rather than the broad, persistent inflation that would prompt a Fed response. Similarly, Trump’s promise to tighten border security and remove illegal immigrants has sparked debates about potential impacts on labor costs. While some argue this could drive inflation by increasing wages for U.S. workers, others counter that immigrant labor does not significantly depress wages for native workers.
The vote on the interest rate cut was not unanimous. Beth Hammack, president of the Federal Reserve Bank of Cleveland, opposed the reduction, favoring a stable rate instead. However, the remaining eleven members of the Federal Open Market Committee, including Fed Governor Michelle Bowman, voted in favor of the cut. Bowman had supported the quarter-point cut in November but had voted against the Fed’s half-point cut in September.
