Fed Lowers Rates as Markets Gauge Future Cuts

The US Federal Reserve has decided to cut its benchmark rate by 0.25%. This brings the federal funds rate down to 4.5%-4.75%, the lowest since February 2023. This comes after September’s sharper 0.5% cut and reflects a more cautious approach as economic conditions evolve. 

The Fed is trying to sustain economic momentum with this policy, as U.S. GDP growth held strong at an annualized 2.8% in Q3, while core PCE inflation sits somewhat elevated at 2.7%, above the Fed’s 2% target.

The job market, though resilient, showed a noticeable slowdown in October, with nonfarm payrolls rising by just 12,000—a major fall from September’s 223,000—partly due to disruptions from labor strikes and hurricanes. 

Analysts calculate a 66% probability of another 25-basis-point cut at the Fed’s December meeting, meaning that markets are alert to a potential policy shift.

Under incoming president Donald Trump’s anticipated pro-growth policies, including corporate tax cuts and increased tariffs, markets are reassessing the Fed’s likely trajectory. 

However, Powell clarified that the Fed’s policies remain insulated from election outcomes. Rising U.S. Treasury yields, with the 10-year benchmark at 4.42%, come from stronger growth prospects rather than inflation risks, keeping bond rates stable in the Fed’s current stance. 

Powell has also dismissed concerns about potential interference from the new administration, and signalinga steady commitment to data-driven policy decisions as markets brace for the year’s final rate announcement.