Fed cuts rates again after Trump's election

Photo: Mandel Ngan Archives Agence France-Presse The Chairman of the American Federal Reserve, Jerome Powell

Posted yesterday at 14:18 Updated yesterday at 18:21

• United States

The US central bank, the Fed, lowered its rates by a quarter of a percentage point on Thursday, the day after the re-election of Donald Trump, which could herald tumultuous days for the monetary policy institution.

This new cut, which puts rates in the range of 4.50 to 4.75%, comes after the half-point cut in September — the first since March 2020.

The Fed meeting had started on Wednesday, and not Tuesday as is usually the case, postponed by a day because of the presidential election, won by the Republican Donald Trump.

“In the short term, the election will have no effect on our decisions,” Fed Chairman Jerome Powell said at his press conference.

“We don't know what the timing and type of reforms will be, and therefore we don't know what the effects on the economy might be. We don’t guess, we don’t speculate, we don’t assume,” he continued.

Jerome Powell, however, refused to comment on a possible weakening of the Fed’s independence under this new Trump administration.

The Republican billionaire was indeed accustomed to interference in monetary policy during his first term, and recently considered that he should have “a say” in the decisions taken by the institution.

“No”

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Jerome Powell also assured that he would not resign before the end of his term if the White House asked him to. Asked at the press conference, he simply answered “no.”

Before specifying that the law “does not allow” the dismissal of the governors of the powerful institution.

These comments come as Donald Trump had indicated in July, after having sown doubt, that he would let Jerome Powell complete his term as chairman of the Fed, which ends in May 2026. His term as governor, which is separate, ends in January 2028.

Jerome Powell had been chosen in 2012 by former Democratic President Barack Obama to join the Board of Governors of the Federal Reserve, then it was Donald Trump himself who promoted him to chairman in 2018.

On the economic front, the Fed chairman praised the vitality of the American economy: “the economy is generally solid […]. The labor market has eased after being overheated and has remained solid.”

“Inflation has declined significantly,” he added, but “the job is not done,” with inflation remaining above the 2% target over a year.

The Fed has brought inflation down by raising rates to slow demand. In September, it fell to its lowest level since February 2021, at 2.1% over one year, according to the PCE index, favored by the Fed.

The tariff increases promised by Donald Trump could, however, cause inflation to rebound.

The prospect of further rate cuts, along with Donald Trump's victory, supported the New York Stock Exchange on Thursday, which closed higher.

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“Resilient” economy

Washington recently published a slew of indicators showing solid economic activity, but moving away from euphoria post-COVID-19.

Third-quarter GDP growth disappointed, but remained nearly twice as strong as the eurozone, at 2.8% annualized.

Job creations were, in October, at their lowest since December 2020, due to hurricanes that hit the country and several strikes, notably at Boeing.

The decision to lower rates was taken unanimously by the FOMC, which did not update its economic forecasts this time, the next update being scheduled for the next meeting, in December.

Across the Atlantic, the Bank of England (BoE), which also met on Thursday, lowered its key rate by a quarter point, for the second time this year, to 4.75%.