US Federal Reserve cuts key interest rates for the third time

Impact of Fed rate cut

Wednesday’s cut reduced the rate by a quarter-point 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.

According to The Associated Press, three Fed officials dissented from the move, the most dissents in six years, and a sign of deep divisions on a committee that traditionally works by consensus. Two officials voted to keep the Fed’s rate unchanged, while Stephen Miran, whom Trump appointed in September, voted for a half-point cut.

A divided Fed

December’s meeting could usher in a more contentious period for the Fed. Officials are split between those who support reducing rates to bolster hiring and those who’d prefer to keep rates unchanged because inflation remains above the central bank’s 2% target. Unless inflation shows clear signs of coming fully under control, or unemployment worsens, those divisions will likely remain.

Who will replace Jerome Powell?

Trump could name a new Fed chair as soon as later this month to replace Jerome Powell when his term ends in May. Trump’s new chair is likely to push for sharper rate cuts than many officials may support.

In an interview with Politico published Tuesday, Trump said “yes” when asked if reducing rates “immediately” was a litmus test for a new Fed chair. Trump has hinted that he will likely pick Kevin Hassett, his top economic adviser.

Hassett has often called for lower borrowing costs, but this week has been more circumspect. In an interview Tuesday on CNBC, when asked how many more rate cuts he would support, Hassett did not give a specific answer and said, “What you need to do is watch the data.”