US Fed makes quarter point cut as Powell insists he would not quit

WASHINGTON

The U.S. Federal Reserve shrugged off concerns about the economic impact of Donald Trump's election victory and moved ahead with a quarter-point cut on Thursday.

The Fed sits just a short walk from the White House, where Democratic President Joe Biden will hand back the keys to Trump in January following the Republican's election win.

But as expected, policymakers did their best to ignore the political drama playing out up the road, voting unanimously to trim interest rates by 25 basis points to between 4.50 and 4.75 percent, according to a Fed statement.

"In the near term, the election will have no effects on our policy decisions," Fed Chair Jerome Powell told reporters after the rate cut was announced, noting there was still uncertainty about what President-elect Trump's actual economic agenda would be.

"We don't guess, we don't speculate, and we don't assume," he said.

Powell also insisted he would not resign if asked to leave early by the president-elect, adding that firing any of the other leaders among the Fed's seven governors was "not permitted under the law."

The U.S. central bank's rate decision should help ease the costs of mortgages and other loans—welcome news for consumers, who had widely cited the cost of living as a top concern ahead of Tuesday's vote.

However, the cost of borrowing will also depend on how financial markets perceive the long-term impact of a Trump victory on the economy and the necessary level of the Fed's interest rates to ensure inflation remains under control.

Powell "stayed clear of commenting on the election outcome," Nationwide chief economist Kathy Bostjancic told AFP on Thursday. "But I do think as we get into 2025, they are going to have to consider that."

'Economy looks quite resilient' 

Polls and surveys indicate that Trump's victory was aided by dissatisfaction over a post-pandemic surge in U.S. inflation, which saw consumer prices rise more than 20 percent.

Thursday's decision adds to a previous rate cut in September, when the Fed began its easing cycle with a larger half-point decrease, and signaled additional rate reductions this year.

The Fed's preferred inflation gauge has since eased to 2.1 percent in September, while economic growth has remained robust.

The labor market has also stayed strong overall, despite a sharp hiring slowdown last month attributed largely to adverse weather conditions and a labor strike.

"Generally speaking, the U.S. economy looks quite resilient, and the labor market still looks very good," Jim Bullard, the long-serving former St. Louis Fed president, told AFP in an interview ahead of Election Day.

"While the December meeting will depend on the data over the next six weeks, the tone from Powell today made us marginally more confident in our call for another 25 basis point cut then," JP Morgan's chief U.S. economist, Michael Feroli, wrote in a note to clients on Thursday.

Fiscal discipline 'broken down' 

With Trump's victory assured, much still depends on whether Republicans can hold onto the House of Representatives, as they appear on track to do—giving them a "Red Sweep" of both houses of Congress along with the White House.

"Markets tend to like divided government as a way to control spending and keep deficits down," said Bullard, who is now dean of the Daniels School of Business at Purdue University.

"What's distressing to an economist like me is that fiscal discipline has really broken down for both political parties," he said.

Trump's victory also raises questions about the independence of the Fed.

The president-elect has repeatedly accused Powell—whom he first appointed to run the U.S. central bank—of working to favor the Democrats and has suggested he would seek to replace him once his term expires in 2026.

With Republicans now controlling the U.S. Senate, which votes on nominations to the Fed, Trump gains significant influence over who will lead the U.S. central bank.

Trump has also expressed interest in having "at least" a say over setting the Fed's interest rate—something that opposes the bank's dual mandate to act independently of Congress and the White House to tackle inflation and unemployment.