The US central bank has announced an interest rate cut, just hours before the Bank of England is tipped to refrain from following suit.
The Federal Reserve cut its main funding rate by a quarter point to a new target range of 4.25%-4.5%, as markets had expected, but signalled that future reductions would happen more slowly.
A resurgence in the pace of inflation is a big worry, with the prospect of new trade tariffs under Donald Trump from 20 January also risking a leap in the pace of US price growth in the New Year as imported goods would cost more.
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Data on Tuesday showing resilient consumer spending among other reasons for Fed policymakers to be wary of inflation ahead.
The Federal Open Markets Committee expected two rate cuts in 2025. Market expectations had been for four just weeks ago, in line with the Fed’s September guidance.
Fed chair Jay Powell told reporters that solid growth, improved employment and progress in the battle against inflation meant that the central bank was in a “good place”.
But he acknowledged that “policy uncertainty” relating to the incoming Trump administration was a concern for the inflation outlook among some of the committee’s membership.
“We just don’t know very much at all about the actual policies, so it’s very premature to try and make any conclusion”, he added.
Government bond yields, which reflect perceived future interest rate paths, ticked upwards.
The dollar found support, gaining 0.5% against both the pound and euro, while major US stock markets retreated.
The Fed’s rate decision was announced just hours before the Bank of England gives its own rate verdict.
No cut is expected while financial markets are expecting a similar message on the possible interest rate path ahead.
UK…
