This is the second reduction for the year and the second in a row, following the announcement in September.
The next meeting is in December. The market has been expecting another cut then, but at Central Bank Chairman Jerome Powell's press conference, it did not appear certain.
He is clear that they have not yet decided how they will act in December and that there are widely differing opinions in the executive board. So it is far from obvious that there will be a reduction in December, says Maria Landeborn.
Insurance reductions
Powell's statement gave the stock market a scare, but an initial drop was quickly picked up.
At the last interest rate announcement, Powell said that what they are doing now is insurance cuts to try to avoid the slowdown in the economy becoming more serious than they want. This was probably another one, says Landeborn.
The board voted 10-2 in favor of lowering the interest rate by 0.25 percentage points. That kind of disagreement in the board is relatively unusual, says Landeborn.
Of the members who voted differently, one wanted to keep the interest rate unchanged, while the other – who was nominated by Trump – wanted to see a larger reduction.
Regardless of Trump
The Fed's decision was made in the shadow of extensive import tariffs, a shut-down government apparatus, and stinging criticism from President Donald Trump, who has called for interest rate cuts.
But these latest cuts would have probably come regardless, Landeborn believes.
I believe that regardless of what Trump had said or done, the interest rate would have been lowered in this situation precisely because they see that the risks in the labor market are increasing.
The Fed also announced that it will stop actively shrinking its bond portfolio in December.
