Second cut: Federal Reserve lowers interest rates by 0.25%

Two days after the election, the Federal Reserve (Fed) announced its second most anticipated move since 2020: a new lowering of interest rates. This time by 0.25%, bringing rates to a range of between 4.5% and 4.75%.

According to a statement officially shared by the institution, there is talk of a "balance" in the economy:

"In support of its objectives, the Committee decided to reduce the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent. In considering further adjustments to the target range for the federal funds rate, the Committee will carefully assess the incoming data, the evolving outlook, and the balance of risks. The Committee will continue to reduce its holdings of Treasury and agency debt and agency mortgage-backed securities. The Committee is firmly committed to supporting maximum employment and returning inflation to its 2% target."

Second cut of the year

The first cut - after eleven increases that began in March 2022 - was carried out in September and decreased the rate by 0.5% (i.e., it remained in a range between 4.75-5%). At that time, the Fed stated:

"The Committee decided to reduce the target range for thefederal funds rate by 1/2 percentage point to 4-3/4 to 5%. In considering further adjustments to the target range for the federal funds rate, the Committee will carefully assess the incoming data, the evolving outlook, and the balance of risks."

At the time, the Fed indicated that they intended to redirect their attention to the lack of stability in the labor market and, they cited "increased confidence" that inflation is approaching the 2% target, although they continued to warn of uncertain economic conditions.