The Federal Reserve cut its key interest rate by a quarter-point last week as expected following a weak employment report for October, Investment News reports.
The cut, which followed a half-point reduction in September, reduced the Fed’s benchmark rate to a target range of 4.50%-4.75%, down from a four-decade high of 5.3% that had been in place for over a year to fight inflation.
Following its meeting, the Fed issued a statement noting that the “unemployment rate has moved up but remains low,” and while inflation has fallen closer to the 2% target level, it “remains somewhat elevated.” The annual rate of inflation has now dropped from a 9.1% peak in mid-2022 to a 3 1/2-year low of 2.4% in September.
The Bureau of Labor Statistics reported that nonfarm payrolls increased by 12,000 for the month of October, down sharply from September and below the Dow Jones estimate for 100,000. It marked the smallest jobs gain since December 2020. The bureau did note that the job totals were impacted by the Boeing strike and two major hurricanes.
Federal Reserve Chair Jerome Powell was non-committal on whether the Fed would proceed with an additional quarter-point rate cut in December, but the jobs report was seen as another indication that the gradual reduction in interest rates would continue.
“The key message is that this report is not changing, directionally, where we were coming into the report,” Josh Hirt, senior US economist at Vanguard, told InvestmentNews. “We do view this as a healthy labor market. We’re seeing both on the jobs and labor supply side, absent today, we’ve generally seen year to date, very healthy gains with both sides of things.”
Powell said the continued cuts in the key rate, aimed in part at supporting the job market, would help to bolster Americans’ confidence in the economy.
“It takes some years of real wage gains for people to feel better, and that’s what we’re trying to create, and I think we’re well on the road to creating that,” he said. “Inflation has come way down, the economy is still strong here, wages are moving up, but at a sustainable level. I think what needs to happen is happening, and for the most part has happened, but it will be some time before people regain their confidence and feel that.”
The benchmark rate sets what banks charge each other for overnight lending but also often has an impact on the interest consumers pay on mortgages, credit cards and auto loans.
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