NEW YORK, Dec. 11 (Xinhua) -- The U.S. Federal Reserve on Wednesday decided, as widely anticipated, to lower the target range for the federal funds interest rate by 25 basis points to 3.5-3.75 percent, following its two-day monetary policy meeting.
The cut comes amid a deteriorating labor market and weakening demand, which prompted the Fed to act. Recent data show employment cooling and business sentiment softening, undermining hopes of a near-term recovery. In addition, internal dissent within the Fed and external political pressure have added to the uncertainty.
THIRD CUT THIS YEAR
The move marks the Fed's third consecutive rate cut since September this year, and the sixth since September 2024.
"Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months," the Federal Open Market Committee (FOMC) said in a statement, stressing that it is "strongly committed to supporting maximum employment and returning inflation to its 2 percent objective."
It is worth noting that the 43-day federal government shutdown starting in October, the longest in history, disrupted the collection and release of key macroeconomic data, leaving the Fed to make decisions with an incomplete picture of the economy. Analysts say the data blackout likely complicated the policy process and contributed to divisions among Fed officials over how to balance inflation and employment risks.
Three of the 12 voting members dissented: one favored a half-percentage-point cut, while two preferred to leave rates unchanged. It was the first meeting with three dissents since September 2019, highlighting the committee's internal divisions over the pace of easing.
MARKET REACTIONS
The U.S. dollar went lower against major currencies following the rate cut, while U.S. stocks ended higher.
The Dow Jones Industrial Average rose 497.46 points, or 1.05 percent, on Wednesday, and the S&P 500 and Nasdaq Composite Index increased 0.67 percent and 0.33 percent, respectively.
Spot gold initially jumped after the dovish cut, as lower rates reduce the cost of holding assets that do not pay interest. But the gains quickly faded, showing that investors are still unsure how much more easing the Fed will deliver.
Bitcoin saw a rebound concurrent with the easing, as traders viewed the rate cut as potentially bullish for risk assets, supporting a short-term rally.
MORE RATE CUT?
"In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks," said the FOMC in the statement, hinting that the central bank would pause rate cuts for some time.
Fed Chair Jerome Powell described the current stance as placing the Fed "well positioned to wait and see how the economy evolves."
Political pressure has also shaped the rate outlook: President Donald Trump has spent months criticizing Powell for not cutting rates more aggressively. Calling Powell "a stiff" on Wednesday, Trump said the 25-basis-point cut could have been "at least doubled."
Powell's term ends in May 2026, and interviews for his successor are in the final stages. National Economic Council Director Kevin Hassett and former Fed Governor Kevin Warsh are believed to be top contenders. Trump told Politico in a recent interview that lowering rates immediately would be a litmus test for the new chair.
"I'm looking for somebody who will be honest with interest rates," he said during a meeting with business leaders at the White House on Wednesday. "Our rate should be much lower." ■
