The Federal Reserve slashed its key lending rate by half a percentage point — the high end of expectations on Wall Street — in a bet that the wobbly jobs market has become a bigger risk to the economy than inflation.
But Fed Chair Jerome Powell said that economic observers should not assume that the half-point reduction “is the new pace” of further cuts.
“We’ve waited, and I think that that patience has really paid dividends in the form of our confidence that inflation is moving sustainably under 2%, so I think that is what enables us to take this strong move today,” Powell told reporters on Wednesday.
“I do not think that anyone should look at this and say, ‘Oh, this is the new pace.’”
The Dow initially surged as much as 375 points to an all-time high after the Fed announcement of a jumbo cut, but turned negative in late trading as investors digested Powell’s comments. The blue-chip index dropped 103.08 points, or 0.3%, to 41,503.10.
The S&P 500, which also hit an all-time high, and the Nasdaq finished in the red.
With inflation barely above target levels, Fed officials have been shifting their focus toward supporting a weakening job market and achieving a rare “soft landing,” curbing inflation without causing a recession.
“The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the US central bank’s rate-setting committee said in a joint statement, which drew a dissent from Governor Michelle Bowman who favored only a quarter-point cut.
White House press secretary Karine Jean-Pierre called the rate cut — less than 50 days before the election — a “moment of progress.”
“Now, prices are going to go down — if you think about being able to buy a home. And these are important, important items for the American people. And so that’s how we see this,” she said.
Donald Trump said Wednesday “it was a big cut.”
“To cut it by that much, assuming they’re not just playing politics, the economy would be very bad,” Trump told reporters.
The Republican presidential nominee and his aides have argued that a cut benefits Vice President Kamala Harris’ campaign by convincing people that the economy is strong and by reducing concerns over inflation.
Powell, who nominated to the Fed board by President Barack Obama and elevated to chair by Trump, denied any partisanship.
“This is my fourth presidential election at the Fed and it’s always the same,” Powell said. “We’re always going into this meeting in particular and asking what’s the right thing to do for the people we serve.”
Policymakers see the Fed’s benchmark rate falling by another half point by the end of this year and another full point in 2025. The Fed said it aims to cut by a final half point in 2026 to end in a 2.75%-3.00% range — considered a “neutral” stance that neither encourages nor discourages economic activity.
Even though inflation “remains somewhat elevated,” the Fed statement said policymakers chose to cut the overnight rate to the 4.75%-5.00% range “in light of the progress on inflation and the balance of risks.”
High interest rates and elevated prices for everything from groceries to gas to rent have fanned widespread public disillusionment with the economy and provided a line of attack for Trump’s campaign.
Harris, in turn, has charged that Trump’s promise to slap tariffs on all imports would raise prices for consumers much further.
Over time, Fed rate cuts should lower borrowing costs for mortgages, auto loans and credit cards, as well as for business loans.
Business spending could grow, and so could stock prices. Companies and consumers could refinance loans into lower-rate debt.
Powell made clear last month in a high-profile speech that Fed officials feel confident that inflation has largely been defeated.
It has plummeted from a peak of 9.1% in June 2022 to 2.5% last month, not far above the Fed’s 2% target.
Central bank officials fought against spiking prices by raising their key interest rate 11 times in 2022 and 2023 to a two-decade high of 5.3% to try to slow borrowing and spending, ultimately cooling the economy.
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