Several messages emerged from the meeting of the US Federal Reserve on Wednesday, December 10, and they did not all say the same thing. The central bank decided to cut its benchmark interest rates by a quarter point for the third consecutive time, a first since 2019 – bringing them to between 3.5% and 3.75%. This is the lowest level in three years, but that did not stop US President Donald Trump from declaring, shortly after the announcement, that the Fed could have “doubled” its rate cut.
This new boost for the US economy comes with a major caveat: The Board of Governors and heads of regional central banks, who make the decision by vote, have rarely appeared so divided in recent history over how to interpret current events and what strategy to pursue next.
“Conditions in the labor market appear to be gradually cooling, and inflation remains somewhat elevated,” said Jerome Powell. The Federal Reserve chair believes that the data has not fundamentally changed since October, in spite of the shutdown – the prolonged closure of the federal government – and the lack of recent, essential data on employment and price levels. In his view, that means the balance of risks still tilts in favor of supporting the labor market. Recent signals have indeed shown that job creation has been insufficient for several months, a sign of a sluggish economy. The rate cut is intended to make the market more fluid, but at the same time, it can fuel inflation.
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