Federal Reserve cuts its key interest rate by a quarter-point on heels of election

The Federal Reserve cut its key interest rate Thursday by a quarter-point.

This rate cut follows a larger half-point reduction in September, and it reflects the Federal Reserve’s renewed focus on supporting the job market as well as fighting inflation, which now barely exceeds the central bank’s 2% target, the Associated Press reported.

Thursday's move slows the Fed’s benchmark rate to about 4.6%, down from a four-decade high of 5.3% before September's meeting. The Fed had kept its rate that high for more than a year to fight the worst inflation streak in four decades. Annual inflation has since fallen from a 9.1% peak in mid-2022 to a 3 1/2-year low of 2.4% in September.

After their rate cut in September, the Federal Reserve estimated that they would make more quarter-point cuts in November and December and four more in 2025. But with the economy stable and Wall Street expecting faster growth, larger budget deficits and higher inflation under a Donald Trump presidency, further rate cuts may have become unlikely, the AP noted.

Future moves by the Federal Reserve are uncertain following the presidential election. With Donald Trump elected as the 47th President of the United States, the Associated Press reports that his election has raised concerns of possible interference by the White House in the Federal Reserve’s policy decisions.

Trump's plan to impose at least a 10% tariff on all imports, and higher taxes on Chinese goods, and to conduct a mass deportation of undocumented immigrants could potentially boost inflation.

Interest rate cuts by the Federal Reserve usually lead to lower borrowing costs for consumers and businesses. However, mortgage rates dropped in anticipation of rate cuts but have since increased as the economy has grown, driven by consumer spending.

Economists at Goldman Sachs project that Trump's proposed 10% tariff, as well as his proposed taxes on Chinese imports and autos from Mexico, could send inflation back up to about 2.75% to 3% by mid-2026.

According to the AP, the economy grew at a solid annual rate just below 3% over the past six months, while consumer spending — driven by higher-income shoppers — increased in the July-September quarter.