Now the US Federal Reserve has done something equally courageous. Further underscoring the need for future stimulus, they cut their target for their main lending rate by 0.25 percentage points, bringing the new range to 3.75% to 4%. Reasons for more cuts Economists believe that this initial slashing would set off a chain reaction of additional cuts. These cuts are necessary to start stimulating the economy and lowering borrowing costs for all Americans.
It’s hard to overstate the Fed’s decision on the heels of all this alarming economic news. According to a new ADP report, the US economy lost 32,000 jobs in September. This major loss reiterates the fragility of the current labor market. Sadly, the ongoing government shutdown has prevented the release of the official monthly jobs report. Therefore, this job loss is both painful and a grievous turn of fortune. The ongoing shutdown has created an even greater barrier to central bankers’ access to important employment data. This has created confusion over what future economic policies should look like.
Federal Reserve Chair Jerome Powell is under increasing pressure. After all, nobody has been more outspoken on the need for lower interest rates than President Trump himself. Amid fears of tariff-driven inflation earlier this year, President Trump implemented sweeping tariffs on many of the country’s largest trading partners. As a FYI, the inflation number for September was 3% year over year. This news, which is a bit lower than projected by economists, gave the Fed a window to change their messaging to prioritize strengthening the labor market.
Economists at Bank of America noted, “Although inflation remains elevated, policymakers are slightly more focused on downside risks to the employment mandate.” This feeling surely drove the Fed’s recent decision to cut rates. Their goal is to address increasing concerns over job creation and economic security.
Wall Street is reacting very positively to the Fed’s decision. Now, investors are wagering on at least a quarter-point cut from the central bank in December. U.S. investors now expect the Fed to do everything it can to prop up economic growth amid these volatile, uncertain times. They have already priced in a greater than 80% chance of the expected cut.