Fed lowers interest rate, sees stronger economy next year

The Federal Reserve reduced its key interest rate by a quarter-point for the third time in a row Wednesday but signaled that it may leave rates unchanged in the coming months.

The cut decreased the Fed’s rate to about 3.6%, the lowest it has been in nearly three years. Lower rates from the Fed can bring down borrowing costs for mortgages, auto loans, and credit cards over time, though market forces can also affect those rates.

Chair Jerome Powell suggested at a news conference that after six rate cuts in the past two years, the central bank can step back and see how hiring and inflation develop. In a set of quarterly economic projections, Fed officials signaled they expect to lower rates just once next year.

President Donald Trump on Wednesday criticized the cut as too small, and said he would have preferred “at least double.” Trump could name a new Fed chair as soon as later this month to replace Powell when his term ends in May. Trump’s new chair is likely to push for sharper rate cuts than many officials will support.

Stocks jumped in response to the Fed’s move, in part because some Wall Street investors expected Powell to be more forceful in shutting down the possibility of future cuts. 

Powell was also optimistic about the economy’s growth next year, and said that consumer spending remains resilient while companies are still investing in artificial intelligence infrastructure. He also suggested growing worker efficiency could contribute to faster growth without more inflation.

Still, Powell said the committee reduced borrowing costs out of concern that the job market is weaker than it appears. 

Powell said inflation could move higher early next year, as more companies pass tariff costs to consumers as they reset prices to start the year. Inflation should decline after that, he added, but it’s not guaranteed.


(AP Photo Jacquelyn Martin)