The Federal Reserve announced its decision to cut interest rates in the range of 3.75%-4%, with a 0.25 p.p. cut for the second consecutive time. In its previous decision on September 17, the cut was of equal size. The bank also announced that it will restart limited purchases of Treasuries after money markets showed signs of liquidity becoming scarce, a condition that the US central bank pledged to avoid.
In the statement, the Federal Open Market Committee (FOMC) stated that negative risks to employment had increased in recent months. Available indicators, considering the reduced data releases due to the shutdown, suggest that economic activity was expanding at a moderate pace, according to the Committee. In this context, the unemployment rate rose but still remains low, as of August.
The cut, which included a nod to the data constraints the central bank faces during the current federal government shutdown, drew dissent from two policy makers, with board member Stephen Miran once again calling for a deeper cut in borrowing costs and Kansas City Fed President Jeffrey Schmid favoring no cut, given the current level of inflation.
The decision on the balance sheet will keep the total value of Fed holdings stable from December 1st, month to month, but will change its portfolio by reinvesting proceeds from matured mortgage securities into Treasuries.
Inflation remains high, as do uncertainties about the economic outlook, according to the statement.
(with Reuters)
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