Divided US Fed Cuts Rates Again to Support Economy
The US Federal Reserve made its second consecutive quarter-point rate cut on Wednesday. The move aims to support the weakening labor market and ease economic pressures. However, it also exposed deep divisions among policymakers within the central bank.
Ten members voted in favor of cutting the key lending rate to between 3.75% and 4%. Two officials opposed the decision. Fed governor Stephen Miran pushed for a larger half-point cut, while Kansas City Fed president Jeff Schmid wanted no change at all.
Fed Chair Jerome Powell acknowledged the split. “We continue to face two-sided risks,” he said. Powell noted that opinions on future rate decisions remain sharply divided.
However, he made it clear that another cut in December is not guaranteed. After his comments, Wall Street stocks slipped, reflecting investor uncertainty about the next move.
Political Stalemate Adds Pressure
The rate cut comes as the US economy struggles with the ongoing government shutdown. Businesses are still adjusting to former President Donald Trump’s tariffs, while policymakers wait for the shutdown to end.
“The shutdown will weigh on economic activity while it persists,” Powell explained. He compared the situation to “driving in fog,” emphasizing caution as official data remains suspended.
Republicans and Democrats have failed to break the deadlock nearly a month into the shutdown. As a result, the Fed is relying on alternative data sources to assess economic health.
Analysts Question the Move
Experts are divided over the rate cut. Moody’s Analytics expert Chris Stanley called it a “tactical error,” warning it may backfire due to persistent inflation. Similarly, Oxford Economics economist Michael Pearce said future rate cuts will likely slow as internal disagreements grow.
Despite the criticism, Powell defended the move as necessary to protect jobs and growth. However, he admitted the Fed must tread carefully to balance inflation and employment goals.
End of Quantitative Tightening
The Fed also announced plans to end its policy of reducing its balance sheet on December 1. This decision was widely expected.
The balance sheet had expanded during the Covid-19 pandemic and has since been shrinking. Former Cleveland Fed President Loretta Mester said the central bank now prefers stability over further reductions. “I don’t think there’s much appetite for that,” she added.
As the divided US Fed navigates uncertain territory, its next steps could shape the direction of the global economy in 2025.
