US Fed cuts interest rates quarter point after Trump victory
U.S. Federal Reserve Chair Jerome Powell attends a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., Nov. 7. Reuters-Yonhap
The U.S. Federal Reserve shrugged off concerns about the impact of Donald Trump's election victory on interest rates and moved ahead with a quarter point cut Thursday.
The Fed sits just a short walk from the White House, where Democratic President Joe Biden will in January hand back the keys to Trump following the Republican's election win.
But as expected, policymakers ignored the political drama playing out up the road, voting unanimously to reduce interest rates by 25 basis points to between 4.50 and 4.75 percent, the Fed said in a statement.
"In the near term, the election will have no effects on our policy decisions," Fed C. hair Jerome Powell told reporters, noting there was still uncertainty about what President-elect Trump's actual economic agenda would be.
"We don't guess, we don't speculate, and we don't assume," he said.
Powell also said he would not resign if asked to leave early by the president-elect, adding that firing any of the Fed's seven governors was "not permitted under the law."
The U.S. central bank's rate decision should help ease the costs of mortgages and other loans -- welcome news for consumers, who had widely cited the cost of living as a top concern ahead of Tuesday's vote.
But the cost of borrowing will also depend on how financial markets think a Trump victory will impact the economy over the longer term, and where the Fed's interest rates will need to settle to ensure inflation remains now.
'Economy looks quite resilient'
Experts have pointed to the post-pandemic surge in U.S. inflation — which saw consumer prices rise more than 20 percent — as playing a major factor in Trump's victory.
Thursday's decision adds to a previous rate cut in September, when the Fed kicked off its easing cycle with a larger half point decrease, and penciled in additional rate reductions this year.
The Fed's favored inflation gauge has since eased to 2.1 percent in September, while economic growth has remained robust.
The labor market has also stayed strong overall, despite a sharp hiring slowdown last month attributed in large part to adverse weather conditions and a labor strike.
"Generally speaking, the U.S. economy looks quite resilient, and the labor market still looks very good," Jim Bullard, the long-serving former St Louis Fed president, told AFP ahead of Election Day.
Bullard, now dean of the Daniels School of Business at Purdue University, predicted a 25-basis-point cut this week, and another cut of a similar size in December.
Futures traders place a probability of around 65 percent that the Fed will cut by a quarter of a percentage-point next month, according to data from CME Group.
But analysts remain split over what the Fed will do next month.
Federal Reserve Board Chairman Jerome Powell arrives to speak during a news conference at the Federal Reserve in Washington, D.C., Nov. 7. AP-Yonhap
With a Trump victory assured, a lot still depends on whether Republicans can hold onto the House of Representatives, as they appear on track to do — giving them a "Red Sweep" of both houses of Congress along with the White House.
"Markets tend to like divided government as a way to control spending and keep deficits down," said Bullard.
"What's distressing to an economist like me is that, really, fiscal discipline has broken down for both political parties," he said.
Trump has repeatedly accused Powell — whom he first appointed to run the U.S. central bank — of working to favor the Democrats, and has suggested he would look to replace him once his term expires in 2026.
The president-elect has also said he would like "at least" a say over setting the Fed's interest rate — something that runs against the Fed's current mandate to act independently of Congress and the White House to tackle inflation and unemployment. (AFP)