The Federal Reserve announced a further 25 basis point interest rate cut on Wednesday, citing uncertain economic prospects and acknowledging that inflation, while moving closer to the 2% target, “remains somewhat elevated.”
Fed cuts rates again as "inflation remains high"
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Since the start of the year, labor market conditions have generally softened, and the unemployment rate has risen but remains low. Inflation has made progress toward the Committee’s 2% target but remains somewhat elevated,” the FOMC stated.
The central bank’s policymaking committee aims to achieve maximum employment and 2% inflation over the long term, considering the risks to achieving these objectives as broadly balanced.
Economic outlook remains uncertain
“The economic outlook is uncertain, and the Committee remains attentive to risks on both sides of its dual mandate,” the FOMC added.
When considering the size and timing of further adjustments to the federal funds rate target range, the FOMC emphasized it will “carefully evaluate incoming data, evolving economic prospects, and the balance of risks.” Additionally, the Fed confirmed it will continue reducing its holdings of Treasury securities, agency debt, and mortgage-backed securities.
“The Committee is strongly committed to supporting maximum employment and returning inflation to its 2% objective,” the FOMC affirmed. In assessing the appropriate stance of monetary policy, the Fed will closely monitor the implications of incoming information for the economic outlook.
“The Committee’s evaluations will consider a broad range of information, including labor market conditions, inflation pressures and expectations, and financial and international developments.”
The only dissenting vote came from Beth M. Hammack, who preferred to keep the federal funds rate target range at 4.50%-4.75%.
Recent economic figures have been mixed
Despite the rate cuts, recent economic data has been mixed. Inflation remains elevated, with the personal consumption expenditures (PCE) index excluding food and energy rising 2.8% year-over-year in October, an increase from the previous month. Meanwhile, the Consumer Price Index (CPI) rose 0.3% in November, bringing the annual rate to 2.7%.
Following the Fed's announcement, the dollar weakened, trading at 1.0424 USD from 1.0470 USD just before the statement.
