Ahmed Kamel – Egypt Daily News
The Federal Reserve lowered its benchmark interest rate by a quarter of a percentage point on Wednesday, marking its third rate reduction this year and underscoring growing concern about a cooling labor market and the increasing threat of economic stagnation. The move brings the federal funds rate to a range between 3.5% and 3.75%, continuing a gradual retreat from the highs reached in 2023 but still far above the emergency near-zero levels adopted early in the COVID-19 pandemic.
For households and businesses, the shift could offer modest financial relief. Mortgage holders, prospective homebuyers, and credit card users may see improved borrowing conditions, while companies struggling with higher financing costs may find some breathing room.
Fed Chair Jerome Powell, speaking at a press conference in Washington, framed the decision as an effort to support hiring at a moment when job growth appears uneven and employers have begun to scale back. But Powell stressed that the central bank is unlikely to embark on an aggressive rate-cutting cycle. “We’re well positioned to wait and see how the economy evolves,” he said, signaling that policymakers intend to proceed cautiously amid conflicting economic signals.
That caution was reflected in unusually sharp divisions within the Federal Open Market Committee (FOMC). Three of the twelve voting members opposed the cut the highest number of dissenters since 2019, exposing tensions over how best to navigate a shifting economic landscape. The disagreement highlights the difficult balance the Fed must strike as it tries to fulfill its dual mandate: maintaining stable inflation while maximizing employment.
Recent data has complicated that balancing act. Inflation has edged higher in recent months even as job creation has slowed, raising fears of a scenario economists call “stagflation,” in which weak growth coincides with rising prices. Powell acknowledged the dilemma plainly, noting that the Fed faces “a challenging situation” with no painless options. “There’s no risk-free path for policy as we navigate this tension between our employment and inflation goals,” he said.
If policymakers had chosen to keep rates steady in an effort to suppress inflation including inflationary pressures tied to rising tariffs, they risked allowing the labor market to weaken further. But in cutting rates to stimulate hiring, they equally risk accelerating consumer spending and reigniting price increases. Until recently, many investors expected the Fed to maintain its stance. As recently as last month, futures markets assessed the probability of a rate cut as low as 30%, according to the CME FedWatch Tool. That probability surged to nearly 90% on Wednesday, driven by tepid labor market data and the shifting rhetoric of key Fed officials.
The September jobs report, released last month, illustrated the Fed’s predicament. Employers added more jobs than anticipated, but the pace of hiring slowed from earlier in the year. Meanwhile, the unemployment rate rose to 4.4% still low by historical standards but the highest since fall 2021. In the days that followed, two policymakers closely aligned with Powell signaled openness to easing policy. John Williams, president of the New York Fed, said he saw “room for a further adjustment in the near term,” a sentiment echoed by San Francisco Fed President Mary Daly, who also suggested that additional easing could be justified.
Although Daly does not vote on monetary policy this year, she is widely seen as an influential voice within Powell’s coalition, her remarks contributing to the growing sense that a pivot toward rate cuts was underway.
As the Fed weighs its next move, the economic outlook remains clouded by uncertainty. Policymakers will continue to parse labor market data, inflation indicators, and the evolving effects of international trade tensions. For now, the central bank has chosen to act preemptively, hoping that a modest rate cut will help steady a labor market that is losing momentum without allowing inflation to regain its grip.
Whether it succeeds will become clearer in the months ahead, but Wednesday’s decision makes one thing evident: the Fed is no longer navigating a booming post-pandemic economy, it is steering through a far more complicated and fragile recovery.
