The US Federal Reserve cut its interest rate for the second consecutive time, lowering it by a quarter percentage point to a 3.75-4 percent range, to support a cooling labor market. The decision, approved 10-2, comes amid moderate economic growth and somewhat elevated inflation. Officials also announced they will stop shrinking their asset portfolio starting December 1.
Federal Reserve officials justified the cut citing a slowdown in employment growth and rising risks to the labor market in coming months. In their statement, they reiterated that “employment growth has slowed” and that “risks to employment will increase in the coming months.” The Federal Open Market Committee (FOMC) voted for the move, though with dissent: Governor Stephen Miran pushed for a larger half-point cut, while Kansas City Fed President Jeff Schmid preferred no reduction.
This marks the second cut following last month's first, driven by a hiring slowdown raising concerns about labor market strength. Chair Jerome Powell had previously warned that further drops in job vacancies could boost unemployment. Yet, the Fed faces internal divisions: several officials caution against easing monetary policy too quickly, as inflation exceeds the 2 percent target. Last month's projections show 9 of 19 policymakers expecting at most one more cut this year.
The government shutdown has complicated decisions, limiting access to recent data; officials referenced the unemployment rate up to August. They recently received a delayed consumer price index report showing the slowest core inflation rise in three months for September, though still at 3 percent year-over-year.
Markets reacted with the S&P 500 rising, while Treasury yields and the dollar increased. Powell will hold a press conference at 2:30 p.m. in Washington. Additionally, the Fed will halt balance sheet shrinkage starting December 1, after reducing over $2 trillion in assets since 2022, bringing the balance below $6.6 trillion.