The US Federal Reserve (FED) on Wednesday (October 29) lowered the key interest rate by 0.25 percentage points, which is the second consecutive reduction this year, and the range is now from 3.75 percent to 4 percent.
The new federal funds rate, which banks charge each other for short-term loans, is now between 3.75 percent and 4 percent, up from a previous range of 4 percent to 4.25 percent.
“Uncertainty about the economic outlook remains elevated. The committee is closely monitoring risks to both sides of its dual mandate and assesses that downside risks to employment have increased in recent months,” the Federal Open Market Committee (FOMC), the Fed’s policymaking body, said, NBC news reported.
The US central bank’s goal is to stimulate economic growth by reducing borrowing costs, thereby encouraging consumer spending and business investment, according to CBS news.
Although the current US government shutdown has delayed the release of the September jobs report, other indicators point to a continued slowdown in job growth, with the US National Employment Report showing that the private sector shed 32,000 jobs last month.
The Fed’s mandate requires keeping inflation and unemployment low, and Fed Chairman Jerome Powell warned last month that risks to the labor market were growing.
“The FED continued the cycle of lowering interest rates primarily due to signs of weakening labor demand. The apparent slowdown in the labor market prompted a precautionary decision to prevent further deterioration, and the interest rate cut in September likely marks the beginning of a series of corrections,” said Sima Shah, chief strategist of Principal Asset Management.
She added that she expects an additional reduction of 0.25 percentage points at the Fed meeting on December 10.
Although the Fed is now focusing on the weakness of the labor market, the fight against inflation is not over yet, notes CBS.
The FED made a similar correction of interest rates in September, which was the first reduction since December 2024.
