Federal Reserve cuts key interest rate
The Federal Reserve cut its key interest rate for the second time this year on Wednesday as it seeks to support economic growth and employment even as inflation remains high.
“Job gains have slowed this year and the unemployment rate has risen but remained low through August,” the Fed said in a statement released Wednesday. “More recent indicators are consistent with these developments.” The government did not release unemployment data after August due to the lockdown. The Fed is tracking private sector numbers instead.
Fed chairman Jerome Powell will speak at 5.30am local time (AEDT).Credit: Bloomberg
Wednesday’s decision lowered the Fed’s interest rate from about 4.1 percent to about 3.9 percent. The central bank had raised the interest rate to roughly 5.3 percent in 2023 and 2024 to combat the biggest inflation spike in 40 years. Over time, lower rates can reduce borrowing costs for mortgages, auto loans and credit cards, as well as business loans.
This move was expected by the markets. In afternoon trading on Wall Street, the S&P 500 and Dow Jones rose 0.3 percent, while the Nasdaq rose 0.5 percent.
The move comes at a troubling time for the central bank, where hiring has slowed but inflation remains above the Fed’s 2 percent target. Compounding its difficulties is the fact that the central bank continues to operate without the economic signals it usually receives from the government, including monthly reports on employment, inflation and consumer spending that have been put on hold due to the government shutdown. The Fed has signaled it may cut interest rates again in December, but a data drought is increasing uncertainty about its next moves.
The Fed generally raises short-term interest rates to combat inflation and lowers interest rates to encourage borrowing, spending and boost hiring. Currently, his two goals are in conflict with each other; so it lowers borrowing costs to support the job market while keeping interest rates high enough not to stimulate the economy enough to worsen inflation.
More to come
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