2 hours ago Natalie Sherman BBC News US share prices slumped after the central bank cut interest rates for the third time in a row but its economic projections signalled a slower pace of cuts next year.
Stocks in the US fell sharply as Federal Reserve chairman Jerome Powell warned the situation would likely result in fewer rate cuts than expected next year.
Wednesday’s rate cut – formally opposed by one Fed policymaker – is the last by the central bank before president-elect Donald Trump takes office.
“The Bank of England is trying to remain cautious,” she said.
“The Bank [of England] is being more of a prudent central bank than the Fed is right now,” he said.
Two hours ago.
Nancy Sherman.
the BBC News.
After the central bank lowered interest rates for the third consecutive time, US share prices fell, but its economic forecasts suggested that rate cuts would occur more slowly the following year.
The Federal Reserve made the widely anticipated decision to set its key lending rate in the target range of 4 percent to 4 percent.
Since September, when the bank began cutting borrowing costs, citing progress in stabilizing prices and a desire to prevent economic weakening, that represents a full percentage point increase.
Since then, reports show that while price increases have continued to bubble, the number of jobs being created has been more resilient than anticipated.
When Federal Reserve chairman Jerome Powell warned that the situation would probably lead to fewer rate cuts than anticipated next year, US stocks plummeted.
“We are in a new phase of the process,” he stated during a press conference.
“Going forward, it’s appropriate to proceed cautiously and monitor inflation progress. “.
The Dow Jones Industrial Average ended the day 2 points and 58 percent lower, marking the longest run of daily losses since 1974 and its tenth consecutive session of declines.
The Nasdaq Composite fell 3.6%, while the SandP 500 lost nearly 3%.
Thursday morning trading in Asia saw the Hang Seng in Hong Kong drop 1 point1 percent and Japan’s Nikkei 225 drop about 1 point2 percent.
Inflation, which gauges the rate of price increases, has been obstinate lately; in November, it increased by just 2.7 percent in the US.
President-elect Donald Trump’s policies, such as proposed tax cuts and broad import tariffs, have also raised concerns among analysts that they may push prices higher.
According to analysts, reducing borrowing costs runs the risk of increasing that pressure by making borrowing easier and enticing households and businesses to take out credit for purchases.
More demand usually translates into higher prices.
On Wednesday, Mr. Powell defended the cut by citing the cooling job market over the previous two years.
Nevertheless, he acknowledged that there is some uncertainty as the White House changes hands and that the move was a “closer call” this time.
Fitch Ratings’ head of US economic research, Olu Sonola, said the Fed seemed to be indicating a “pause” to cuts as uncertainty over White House policies cast doubt on the future.
He declared, “Inflationary storms are gathering, but growth is still good and the labor market is still healthy.”.
Formally opposed by one Fed policymaker, Wednesday’s rate cut is the central bank’s final one before President-elect Donald Trump assumes office.
He pledged to lower interest rates and prices when he won the election in November. However, since September, mortgage rates have actually increased, reflecting wagers that borrowing costs will remain high.
Policymakers now anticipate that the bank’s key lending rate will drop to just 3point 9 percent by the end of 2025, up from the 3point 4 percent forecast just three months ago, according to forecasts issued by the Fed on Wednesday.
Additionally, they predict that inflation will remain higher than expected in the upcoming year, at roughly 2.5 percent, which is still higher than the bank’s target of 2 percent.
Even though a cut would have likely upset markets, Brean Capital chief economic advisor John Ryding said he believed it would have been better for the Fed to postpone one at this meeting.
“The US has made tremendous progress since the inflation peak, and it runs the risk of abandoning that progress, possibly even partially reversing it,” he stated. “The economy appears to be doing well. “What’s the hurry?”.
The Fed’s announcement is made the day before the Bank of England is scheduled to announce its most recent interest rate decision in the UK, where price inflation has also recently increased.
It is generally anticipated that it will maintain its benchmark rate at 4 percent.
The National Institute of Economic and Social Research’s Monica George Michail, an associate economist, stated that the Bank of England was dealing with higher-than-US wage growth and service price increases.
“Inflation will also be impacted by some of the government’s plans, including minimum wage increases,” she said.
“The Bank of England is trying to remain cautious,” she stated.
She cited Mr. Trump’s tariff plans to warn that inflation risks exist in the US as well.
According to Mr. Ryding, he believed the Bank of England was more obviously reacting to the reality of the situation at hand because, unlike the Fed, it is not required to take unemployment into account as part of its mandate.
He stated that “the Bank [of England] is being more of a prudent central bank than the Fed is right now,”.
