On Wednesday, the Federal Reserve announced the decision from its latest meeting to make the second interest rate cut of the year, citing a softening labor market.
The Federal Reserve on Wednesday announced its second interest rate cut of this year as policymakers moved to support the labor market despite inflation remaining above the central bank's target.
Fed policymakers voted to lower the benchmark federal funds rate by 25 basis points to a new range of 3.75% to 4%. The move follows a rate cut of that size in September, which was the first reduction this year.
Inflation has been flat in recent months, but core inflation, while under control, has been above the Fed's target, according to Powell:
Policymakers have been monitoring economic data, which has shown a slowdown in the labor market in recent months as businesses grapple with changes in trade and immigration. Meanwhile, inflation has trended higher as tariff-related price hikes filter into government data.
Those trends have put the Fed in a bind as it looks to fulfill its dual mandate goals of stable prices in line with the 2% long-run target for inflation as well as promoting maximum employment.
The employment citation is an interesting one. There's a wild card in the American employment picture right now, and that is the fact that over 2 million illegal aliens have left the country, either involuntarily or through voluntary self-repatriation. While there's little good data (at least, yet) as to how many jobs have been vacated and how that will affect the jobs market for citizens, out of 2 million people suddenly gone, there are bound to be some effects.
Read More: Big: Fed Drops Federal Funds Rate by .25 Points
Following the announcement of the rate cut, Fed Chairman Jerome Powell said:
Fed Chair Jerome Powell said at the post-announcement press conference that policymakers remain focused on the dual mandate and noted that while the government shutdown has delayed some important economic data from federal agencies, the public and private data available "suggests that the outlook for employment and inflation has not changed much since our meeting in September."
Powell did equivocate some on the jobs data:
"You don't see anything that says the job market — or really any part of the economy — is making a significant deterioration. You don't see that," Powell said. "The layoff numbers have not gone up, but job creation is very low. And the job finding rate for people who are unemployed is very low, but the unemployment rate is very low as well, 4.3% is a low unemployment rate."
President Trump, we should note, has been applying pressure on the Fed to lower interest rates since he resumed office in January.
As of this writing, the markets seem not to be much affected by the announcement. The Dow Jones 30 is down 103 points for the day, while the Nasdaq 100 is up almost 69 points.
The next meeting of the Fed will take place in mid-December. It's anyone's guess at this point whether there will be another rate cut at that time.
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