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US Federal Reserve Cuts Interest Rates for Second Time This Year Amid Slowing Labour Market

Strategic Insights

— 2 min read

The US Federal Reserve cut interest rates for the second consecutive month, reducing borrowing costs to 3.75-4 per cent. Despite this move, Fed Chairman Jerome Powell warned that another monetary easing in December is not guaranteed, citing strongly differing views on the rate-setting committee. The decision comes amidst a federal government shutdown that has delayed the collection and publication of key labour market data. Powell expressed concern about the jobs market, stating it is "softer and less dynamic," while acknowledging that inflation remains "somewhat elevated."

Key Takeaways:

  • The US Federal Reserve cut interest rates for the second consecutive month, reducing borrowing costs to 3.75-4 per cent.
  • Fed Chairman Jerome Powell warned that another monetary easing in December is not guaranteed, citing strongly differing views on the rate-setting committee.
  • The decision comes amidst a federal government shutdown that has delayed the collection and publication of key labour market data.
  • Powell expressed concern about the jobs market, stating it is "softer and less dynamic," while acknowledging that inflation remains "somewhat elevated."
  • The rate-setting committee has splits, with Stephen Miran voting for a larger half a percentage point interest rate cut and Jeff Schmid voting to keep interest rates unchanged.
  • The Fed will be ending its quantitative tightening programme on December 1, which is likely to ease credit conditions.
  • President Trump has attacked Powell for not cutting interest rates fast enough this year, and the White House is interviewing five candidates to replace Powell as Fed chairman.
  • Michael Pearce, deputy chief economist at Oxford Economics, believes the Fed will not cut interest rates until the first quarter of next year.

Statistics:

  • The US Federal Reserve reduced interest rates by 0.25 percentage points, as widely expected by financial markets.
  • The rate-setting committee voted 5-1 in favour of cutting interest rates, with Stephen Miran voting for a larger interest rate cut.
  • The yield on two-year Treasury bonds rose by 0.1 percentage points, while the yield on ten-year bonds rose by 0.08 percentage points.
  • The dollar gained more than 0.17 per cent against a basket of currencies after Powell's comments.
  • Traders reduced their bets on a December easing from over 90 per cent to 88 per cent.
  • Official figures showed annual consumer prices hit 3 per cent in September for the first time since January last year.
  • US consumer confidence has fallen to a six-month low this month, according to the Conference Board.
  • A separate sentiment survey from the University of Michigan hit a five-month low in October.

Sources:

  • The Financial Times: "US Federal Reserve cuts interest rates for second time this year"
  • The Wall Street Journal: "Fed Cuts Interest Rates for Second Time This Year"
  • Bloomberg: "Fed Cuts Interest Rates, but Powell Warns of December Uncertainty"
  • The Conference Board: "Consumer Confidence Index"
  • The University of Michigan: "Surveys of Consumers"
  • Oxford Economics: "US Economic Outlook"

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