Federal Reserve also announces the end of the reduction of its balance sheet, on December 1st; This process is known as quantitative adjustment
The (Fed, American central bank) announced this Wednesday (29) that it will reduce interest rates in the economy by 0.25%, leaving them between 4% and 3.75%, given the increase in “risks of a drop in employment in recent months”. In a statement issued by the Fed’s Federal Open Market Committee (FOMC) at the end of its two-day monetary policy meeting, the body said that “uncertainty about the economic outlook remains elevated.”
The Fed, which had already made a similar rate cut at its September meeting, also announced that it will end the reduction of its balance sheet, a process known as quantitative adjustment, on December 1st, further intensifying monetary easing.
The FOMC indicated that it remains attentive to the risks affecting both sides of its dual mandate – full employment and inflation around 2% – and that it considers “that downside risks to employment have increased in recent months”.
The current drop in employment in the US is compounded by inflation that in September reached 3% year-on-year, a level far from the post-covid-19 pandemic peaks, but which, partly due to the effects of the government’s tariffs, remains above the level desired by the Fed.
The decision is in line with what was predicted by most analysts, who expected a 0.25% cut in the reference rate, even given the current lack of macroeconomic data published in the USA due to the closure of the federal government, in which the world’s largest economy has been plunged since October 1st.
As had already happened at the September meeting, Stephen Miran, the Fed governor recently appointed by Trump with the aim of promoting greater monetary easing, again voted against the decision approved by 10 of the 12 voting members of the FOMC and stated that he preferred a half-point cut in rates.
Many economists, as well as most FOMC members, according to the Fed’s latest summary of projections, believe that the appropriate level for the price of money by the end of the year would be in a range between 3.5% and 3.75%, which is why many predict that, at its last meeting of the year, in December, the Fed will cut the rate again by another 0.25%. However, the persistent shutdown of the federal government and the consequent lack of indicators to assess the health of the world’s largest economy raise certain doubts about another possible cut in December.
*With information from EFE
Published by Nícolas Robert
