Adds comments from Fed chairman Jerome Powell, other data.
US Federal Reserve policymakers cut their target interest rate today by a quarter point, the second reduction of the year, but Fed chair Jerome Powell said a previously telegraphed December cut was "far from" a foregone decision.
The Fed's Federal Open Market Committee (FOMC) on Wednesday cut the federal funds rate to 3.75-4pc, following its first cut of the year in early September, also by a quarter point, after recent and revised employment data signaled the labor market was weakening rapidly.
"With downside risks to employment increased in recent month, the balance of risk has shifted," Fed chair Jerome Powell said after the meeting. "Accordingly, we judged appropriate at this meeting to take another step toward a more neutral policy stance."
But Powell said another rate cut during the Fed's next meeting in December was not a sure thing, citing "strongly differing views" in the FOMC discussions, which included one governor recently nominated by President Donald Trump. "Policy is not on a preset course."
Powell also said the Fed would conclude its balance sheet runoff — known as Quantitative Tightening (QT) — by 1 December. This process involves the Fed reducing its holdings of government securities to decrease excess liquidity, another tool to prop up interest rates.
The Fed in September penciled in two more quarter point cuts this year, with the last one in December, and only one next year.
Even with the government shutdown cutting off most official federal data, Powell said the Fed's economists are able to continue tracking the economy through state-level weekly jobless claims data and private sector data on firings and hirings, consumer spending and confidence. He said the labor data showed "a gradual cooling."
Regarding US import tariffs' impacts on inflation, he said they were "pushing up prices in goods resulting in higher overall inflation" but that a "reasonable base case is that the effects on inflation will be short-lived, a one-time shift in the price level."
Still, he added it was "possible that the inflationary effects could, instead, be more persistent, and that is a risk to be assessed and managed."
Powell called the current economic environment "pretty challenging". Still, he noted that, at 4.3pc, unemployment was low and the economy is "growing at close to 2pc".
The FOMC cut its target rate by 100 basis points over three meetings in late 2024, bringing it down from a near two decade high as inflation was slowing from Covid-19 reopening highs in mid 2022.
The CME's FedWatch tool on Wednesday showed 68.4pc odds of another quarter point cut in December, compared with 86.9pc odds on Tuesday.
Powell has come under unrelenting pressure from President Donald Trump, who has claimed he was a "numbskull," among other terms, for being slow to resume cuts. He threatened to fire Powell, whose term in office ends next May, but backed away from that threat to avoid tanking financial markets.
By Bob Willis
