The Federal Reserve (Fed), the Central Bank of the United States, cut its benchmark interest rate by 0.25 percentage point on the 10th local time. It was the third cut this year and the third in a row, narrowing the interest rate gap between Korea (2.50%) and the United States to 1.25 percentage points at the upper bound.
The Fed said after the Federal Open Market Committee (FOMC) regular meeting that it decided to lower the benchmark rate to 3.50%–3.75% from 3.75%–4.00%. Nine of the 12 voting members supported the move, while three dissented. Director Steven Myron argued for a third straight big cut (a 0.5 percentage point reduction), and two others, Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee, called for holding rates steady.
The New York Times (NYT) said, "A vote was held for the fourth consecutive time without winning unanimous approval from all 12 Fed Commissioners," adding, "It shows how divided the Central Bank is internally as it seeks to balance the risks of rising unemployment and entrenched inflation."
A slowdown in hiring drove the Fed's decision to cut rates. The U.S. Department of Labor released a September jobless rate of 4.4%, higher than expected. The Fed said, "So far this year, job growth has slowed and the unemployment rate has edged up through September," adding, "More recent readings are consistent with this trend."
The Fed aims in the long run to achieve maximum employment and keep inflation at 2%. On this, the Fed said, "The committee is attentive to risks to both sides of the dual mandate, and judges that downside risks to employment have increased in recent months," while assessing inflation as "still somewhat elevated."
In the dot plot, the Fed signaled that additional rate cuts next year would be limited to one. The dot plot is a chart released four times a year in which 19 Fed Commissioners anonymously mark their projected future rate levels with dots. The median of the Fed Commissioners' rate projections pointed to one cut (0.25 percentage point) by the end of next year, the same as in September.
The outlook for rate cuts next year is uncertain. Fed Chair Jerome Powell drew attention by saying at a press conference that the benchmark rate is within the range estimated to be "neutral." A neutral rate is the level the Fed aims for that neither stimulates the economy nor restrains it.
In its policy statement, the Fed used the phrase "in considering the extent and timing of any additional adjustments" regarding future benchmark rate decisions. The phrase "extent and timing," which was not used in January, has prompted interpretations that the Fed could delay or even stop rate cuts ahead. Powell said, "We are in a good position to wait and see how the economy evolves from here."
Powell, who is cautious about rate cuts, is set to step down as chair in May next year and will preside over three more rate-setting meetings. A chair newly appointed by Trump is likely to argue for rate cuts. The Wall Street Journal (WSJ) reported, "President Trump said the nomination of a successor is imminent, but it is uncertain whether the successor can command the same respect as before."