The US Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, despite elevated inflation and rising unemployment.
The interest rate now falls in the 3.75 per cent – 4 per cent range.
US President Donald Trump has been keeping the Fed Res under pressure for additional rate cuts.
The central bank also announced it will restart limited purchases of Treasury securities since money markets showed signs that liquidity was becoming scarce. The US Treasury yields extended their rise after the announcement, with the benchmark 10-year Treasury yield rising by 3.5 basis points at 4.018 per cent, and the two-year yield rising 3 bps to 3.524.
Also Read: Federal Reserve cuts interest rate by 25 bps
The interest rate cut decision was a divided one however, drawing dissent from Governor Stephen Miran, who called for a deeper reduction in borrowing costs, while Kansas City Fed President, Jeffrey Schmid favoured no cut at all, citing ongoing inflation.
“There’s no risk-free path to policy”, said Federal Reserve Chair, Jerome Powell, in a detailed press conference after the rate-cut announcement, adding that, “Another rate cut in December is not a foregone conclusion.”
The ongoing government shutdown, which has now turned into one of the longest in US history, has also complicated the Fed’s decision-making. With there being minimal to none economic data as employees of the Bureau of Labor Statistics (BLS) have been furloughed during the shutdown, the Fed’s ability to study labour market conditions, current employment rate, and the number of new jobs added to the economy has been impaired.
The last jobs report was released in early September, before the shutdown. The BLS, whose jobs report has been suspended, still released its inflation report for September that showed prices going up, albeit slowly.
Powell had also said earlier this month that “both the supply and demand for labour has declined quite sharply.”
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