The US central bank has cut interest rates for the second time in a row as the independent agency’s future becomes uncertain under a second Donald Trump presidency.
The Federal Reserve, known as the Fed, has brought rates down to 4.5% from 4.75%. Unlike the UK, the US interest rate is a range to guide lenders rather than a single percentage.
But as is the case with the UK, it’s only the second time in more than four years the US regulator has cut rates.
Rates have been dropped as inflation fell to 2.4%, not far off the Fed’s 2% target, and the weakest jobs report of the Biden administration was posted in September. The regulator is tasked with both maintaining price stability and maximum US employment.
The cut also comes after US recession fears in August sparked a global stock market sell-off.
On Thursday, the Fed’s Open Market Committee said the US’ “economic activity has continued to expand at a solid pace,” and added that while monthly job gains have slowed, “labour market conditions have generally eased”.
Fed chair Jerome Powell said: “The economy is strong overall and has made significant progress toward our goals over the past two years.”
When asked about Mr Trump winning the 2024 election, he insisted that “in the near term, the election will have no effect on our policy decisions”.
Mr Powell has had a fractious relationship with Mr Trump – who will become president again after his inauguration in January.
Though Mr Trump hired Mr Powell in 2018, he had considered firing him as he declined to sharply lower interest rates.
Recently Mr Trump said he would not fire Mr Powell, but during his first term in office described the Fed chair as “clueless” and an “enemy”.
Speaking at Thursday’s press conference, Mr Powell bluntly said “no” when asked if he would resign if asked by Mr Trump.
He later said it is “not permitted under the law” for a president to fire a Fed chair or any other Fed governor with a leadership position.
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What next for the Fed?
Even if Mr Powell remains in post until his tenure ends in May 2026 there are questions about the independence of the Federal Reserve.
Mr Trump has promised interest rates would go down under his presidency, something he does not have power over while the Fed operates independently of government.
Comments about monetary policy are typically avoided by politicians, who defer to central banks to respect their independence.
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Even under existing structures, Mr Trump can influence Fed decision-making by appointing board members – subject to Republican-controlled Senate approval – as their terms end early in 2026.
The Fed was made independent in 1951 so it could take action to lower inflation free of political interference.