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Federal Reserve cuts rates by 25 basis points; Powell would not resign if asked by Trump

08 November 2024

The Federal Reserve cut interest rates, citing steady economic growth, as chair Jay Powell underscored the central bank’s independence.

By Gary Jackson,

Head of editorial, FE fundinfo

The Federal Reserve has reduced its benchmark interest rate by 0.25% to a target range of 4.5%-4.75%, marking a slowdown from September’s 0.5% rate cut aimed at shoring up a weakening jobs market.

The decision followed a two-day federal open market committee (FOMC) meeting that began a day later than usual due to the US election, which saw Republican candidate Donald Trump win the race to the White House.

At a post-meeting press conference, chair Jay Powell highlighted the economy’s resilience but refrained from speculating on potential impacts from incoming president Trump’s proposed policies, which include tax cuts and extensive deregulation. Powell emphasised the Fed’s commitment to remain data-driven and impartial in its policy decisions.

“My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. The economy is strong overall and has made significant progress toward our goals over the past two years,” he said.

“We continue to be confident that with an appropriate recalibration of our policy stance, strength in the economy and the labour market can be maintained, with inflation moving sustainably down to 2%.”

Powell also stated that he would not resign if Trump asked him to, citing legal protections that prevent a president from dismissing a Fed chair prematurely. When asked about his response to such a potential request from Trump, whose advisers had suggested the president-elect may ask for his resignation, Powell said it is “not permitted under the law” for a new administration to dismiss a Fed chair before the end of their term.

Trump’s victory has raised concerns among economists about potential inflationary pressures and a slowdown in growth, given his policy agenda. The Fed’s statement affirmed that economic conditions remain “solid”, even as the labour market has shown signs of cooling compared to earlier in the year.

James McCann, deputy chief economist at abrdn, said: “The Fed stuck to the script, delivering a well telegraphed 25 basis point interest rate cut as it continues to take its foot off the policy brakes. However, the central bank will face more difficult decisions moving forward with Donald Trump re-elected on an agenda to deliver broad changes in trade, immigration, regulatory and fiscal policy, all of which could have clear implications for the growth and inflation outlook.

“Against the backdrop of heighted policy uncertainty, the Fed will likely look to keep its options open, signalling that policy moves will be very much data dependent and that the central bank is not on a preset course. This was a message that came through clearly in the FOMC press statement which continues to flag uncertainty around the outlook and the need for the Fed to monitor a wide range of incoming information.”

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