After a two-day meeting of its monetary policy committee in Washington, DCEDF announced would move its target rate to 4.50% to 4.75%. Investors anticipated the move after the central bank cut more than half a percentage point at its September meeting.

“We remain confident that with an appropriate recalibration of our policy stance, the strength of the economy and the labor market can be maintained, with inflation coming down sustainably to 2%,” Fed Chairman Jerome Powell said during a press conferences on Thursday.

The cut comes the same week President-elect Donald Trump won the presidential election. Trump inherits an economy that has a relatively strong labor market, but is also showing signs of slowing. Economic output has also been strong, and while inflation is easing, there is still some lingering constraint.

The Fed has signaled that tapering will continue gradually. The latest rate cut was also anticipated given signals that the labor market is weakening and general consumer pain from interest rates being so high.

Because inflation remained high in the first half of the year and even rose at some points, the moment when the Fed would start cutting interest rates has been consistently pushed back since early 2024. For a while, it looked possible that The central bank has not cut rates at all this year, although recent data showing inflation is falling has made that less likely.

The Fed’s goal is long-term inflation of 2%, a level that is healthy for the economy and for consumers.

The most frequently cited indicator of inflation for the public is the consumer price index. CPI inflation fell by a tenth of a percentage point to 2.4% for the year in September, the Bureau of Labor Statistics reported, marking six months of disinflation. CPI inflation is now the lowest since February 2021, shortly after President Joe Biden was sworn in.

But the Fed is looking at another gauge of inflation, the personal consumption expenditure index, when considering its next steps. The PCE index for September, which was released this week, showed PCE inflation falling down to 2.1%.

Core PCE inflation, a measure of inflation that strips out volatile energy and food prices, remained at 2.7% year-over-year.

Trump’s relationship with Fed Chairman Jerome Powell will also be something to watch. Powell, a Republican, was first nominated to head the Fed by Trump, and Biden later renominated him.

Powell was able to win Democratic support because of his defense of central bank independence during the Trump years and his strong support for the pursuit of full employment. He and Trump have been in open conflict over monetary policy.

While in office, Trump has been critical of Fed policy, blaming the central bank for raising interest rates too quickly. It was reported that Trump had private discussions about firing Powell. Powell said at the time that he did not believe Trump had the authority to fire him.

In 2019, Trump famously wrote that “his only question is who is our greatest enemy” — Powell or Chinese leader Xi Jinping.

The last time interest rates were cut in the US was during the crisis. The stock market was in free fall and the economy had gone into recession due to the pandemic. The Fed cut rates to near zero, keeping them at that historically low level for two years, until a burst of inflation forced the central bank to start raising interest rates.

The Fed’s interest rate target affects all aspects of life. Higher interest rates have driven up mortgage rates and put home ownership out of reach for many voters. They also made it more expensive to take on debt like car loans and credit cards.

This latest cut will likely provide some relief to voters, but it will only be marginal, given that it will be some time before the Fed continues to cut its interest rate target.

The labor market proved remarkably resilient during the Fed’s historic tightening period and gave the Fed insulation to keep interest rates high, although there were now signs that the labor market was bending significantly, raising alarm and putting more pressure on the central bank to cut rates.

The economy nearly stalled in October, adding just 12,000 jobs, and the unemployment rate remained at 4.1 percent, the Bureau of Labor Statistics reported last week. Investors had expected job growth to slow to 108,000, in part due to hurricane damage and a strike at Boeing, but the report was even worse than expected.

Job openings, reported separately by the BLS, also recently fell to their lowest level since Biden was sworn in, another indicator that the labor market is bending. However, weekly jobless claims recently fell to their lowest level since May, according to the Labor Department, a sign that there is still some underlying strength in the labor market.

Despite the weak labor market, global economic output, the main way recessions are tracked, has remained strong and even increased this year.

Gross domestic product growth, a measure of economic output, rose 2.8 percent in the third quarter of this year. The news was published last week in the preliminary estimate of the Bureau of Economic Analysis.

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GDP growth has been largely positive during Biden’s tenure, although it contracted in the first two quarters of 2022, which at the time raised concerns that the US would enter a recession – but those fears have not been they never materialized.

The economy expanded at a rate of 3% in the second quarter of this year and only 1.4% in the first quarter of 2024.