The US central bank has cut its key interest rate again as Donald Trump’s election as president raises new uncertainty about the future for borrowing costs.
The cut puts the Federal Reserve’s lending rate in the range of 4.5%-4.75%.
It marks the second drop in a row after the Fed lowered rates for the first time in more than four years in September, indicating confidence that price rises were finally stabilising.
Forecasters have been expecting borrowing costs to fall further in the months ahead but warned that Trump’s plans for tax cuts, immigration and tariffs could keep pressure on inflation and drive up government borrowing, complicating those bets.
Interest rates on US debt have already jumped this week, reflecting those concerns.
The decision comes the same day that the Bank of England warned that it could take longer for borrowing costs to fall, warning that inflation could creep higher after last week’s Budget.
“On both sides of the pond, we are seeing expectations for future rate cuts being scaled back considerably compared to what many had originally hoped for,” said Lindsay James, investment strategist at Quilter Investors.
“In the US, it seems interest rates will stay higher for longer as the Fed will need to tread very carefully until it is better able to assess the true impact of Trump’s plans.”
Fed chairman Jerome Powell said on Thursday that it was too early to tell how the new administration’s agenda might affect the US economy.
“It’s such an early stage – we don’t know what the policies are, we don’t know when they will be implemented,” he said. “In the near term, the election will have no effects on our policy decisions.”
As well as raising uncertainty about future rate decisions, the election may also pose new political challenges for Mr Powell, who was named Fed chairman by Trump but subsequently became a frequent target of his criticism.
US media have reported that Trump allies have been looking at ways for the White House to assert more control over the Fed.
On Thursday, Mr Powell hit back at suggestions that the incoming president might have the power to shake up top personnel at the bank.
He said he would not step down if Trump asked and said that it is “not permitted under law” for the White House to force him out.
Mr Powell has faced heavy scrutiny over the last few years, as prices started surging in 2022.
The bank responding by hiking rates rapidly that year, ultimately raising them from near zero to roughly 5.3% as of July – the highest rate in more than two decades.
Those rises affected the public in the form of higher borrowing costs for credit cards, mortgages and other loans.
The Fed started to reverse course in September, slashing rates by a bigger-than-usual 0.5 percentage points, saying it was confident that the pace of price rises in the US was stabilising.
Inflation in the US stood at 2.4% in September, down from more than 9% in June 2022, according to the latest official figures.
The cut announced on Thursday, which was widely expected and unanimous, lowered rates by a further 0.25 percentage points.
Mr Powell said on Thursday officials remained equally focused on keeping prices stable and the job market healthy.
Though concerns flared earlier this year about rising unemployment, those quietened in September, after data showed an unexpectedly strong burst of hiring.
However, the latest figures showed almost non-existent job growth in October, when the country was grappling with hurricanes and strike actions.
He said officials expected to continue to cut rates, but how fast and how far remained to be seen, but resisted questions seeking more precise guidance.
“We don’t think it’s a good time to be doing a lot of further guidance – there’s a fair amount of uncertainty,” he said. “The point is to find the right pace and destination as we go.”