Khaberni - The Federal Reserve (the American central bank) reduced the short-term interest rate on Wednesday for the third time this year, reaching its lowest level in nearly three years.
Today, on Wednesday, the Federal Reserve announced a cut in interest rates by 25 basis points (0.25%), setting them in a range between 3.50% and 3.75%.
For Americans who face high borrowing costs for buying homes, cars, and other major purchases, this year's interest rate cuts could lessen these costs over time, although this is not guaranteed. Mortgage rates are particularly affected by financial markets.
The government shutdown led to a two-month delay in employment and inflation data, leaving the Federal Reserve with much less information about employment and inflation than usual, according to the Associated Press.
Jerome Powell's term as the chair of the board ends in May, and President Donald Trump will likely nominate his replacement, possibly as early as this month, who will most likely seek to lower borrowing costs. However, the new president may face resistance from other officials in the Federal Reserve.
The Federal Reserve's interest rate-setting committee, comprising 19 members, exhibits a sharp divide between supporters of lowering interest rates to stimulate employment and opposers to keeping them unchanged since inflation is still higher than the bank's target of 2%. Higher borrowing costs can slow spending and the economy, limiting price rises.
Last week, the government announced in a delayed report that the Federal Reserve's favored inflation index remained high in September, with overall and core prices rising by 2.8% compared to last year.
The lack of economic data has exacerbated divisions. However, by their meeting in January, they will have up to three months of accumulated reports to consider. If these figures show continued employment weakness or a sharp increase in layoffs, the Federal Reserve might reduce interest rates again in January.
On the other hand, if the data shows employment stability with high inflation remaining, they might delay any additional cuts for several months.
In an interview with Politico published on Tuesday, Trump answered "yes" when asked if an immediate reduction in interest rates was a crucial criterion for selecting the new Federal Reserve chair. Trump hinted that he would most likely choose Kevin Hassett, his chief economic adviser.
Hassett has long advocated for reducing borrowing costs, but he was more cautious this week. In an interview with CNBC on Tuesday, when asked about the number of additional cuts he would support in interest rates, Hassett did not give a specific answer, simply stating, "What you need to do is follow the data".
