The Federal Reserve lowers interest rates by 0.25 percentage points.

• The Federal Open Market Committee reduced its benchmark overnight borrowing rate by 25 basis points, bringing the target range to 4.50%-4.75%.
• The vote was unanimous, and officials have justified the easing of policy to prioritize supporting employment as much as arresting inflation.

The Federal Reserve approved a second consecutive interest rate cut on Thursday, adopting a more moderate approach but continuing to adjust monetary policy.

The Federal Open Market Committee reduced its benchmark overnight borrowing rate by 25 basis points to a target range of 4.50%-4.75%, which influences consumer debt instruments such as mortgages, credit cards, and auto loans.

The move was widely anticipated and communicated at the September meeting and in subsequent remarks from policymakers. The vote was unanimous, except for the first "no" vote from a Fed governor since 2005. This time, Governor Michelle Bowman supported the decision.

The Fed's post-meeting statement revealed some changes in its assessment of the economy, particularly in how it views the effort to control inflation while maintaining a strong labor market.

The document stated that the risks to achieving its employment and inflation goals are roughly balanced, a change from September when it expressed "greater confidence" in the process.

Officials have justified the easing of policy, stating that supporting employment is at least as important as controlling inflation.

The unemployment rate has increased but remains low, while the economy has sustained steady growth, according to the committee's latest statement.

The change in policy has been portrayed by officials as an effort to align the rate structure with an economy where inflation is approaching the central bank's 2% target, while the labor market shows signs of weakening. According to Fed Chair Jerome Powell, the policy needs to be adjusted to a less restrictive level, as it was when the central bank's primary focus was on controlling inflation.

Powell will address the decision at his 2:30 p.m. ET news conference, which was rescheduled from November due to the U.S. presidential election.

The Fed may need to make deeper cuts to combat inflation, but the macro economy is still growing strongly.

The U.S. Gross Domestic Product (GDP) grew at a 2.8% pace in the third quarter, which is less than expected and slightly below the second-quarter level, but still above the historical trend for the U.S. around 1.8%-2%. Preliminary tracking for the fourth quarter suggests growth around 2.4%, according to the Atlanta Fed.

Despite the labor market's overall strength, nonfarm payrolls only grew by 12,000 in October due to factors such as storms in the Southeast and labor strikes. The decision was made amid a shifting political landscape.

In the election, President-elect Donald Trump obtained a remarkable triumph. Despite economists anticipating that his policies would negatively affect inflation, he intends to impose punitive tariffs and expel undocumented immigrants. Despite this, during his first term, inflation remained low while economic growth, except for the initial phase of the Covid pandemic, remained robust.

Despite being a harsh critic of Powell and his colleagues during his first term in office, Trump's term as chair ends in early 2026. Central bankers typically avoid commenting on political matters, but the Trump dynamic could impact the course of policy ahead.

If economic activity increases under Trump, the Fed may be less likely to cut rates as much, depending on how inflation responds.

The Fed is expected to approve another quarter-point cut in December and pause in January to evaluate the impact of its tightening measures, according to the CME Group's FedWatch tool.

In September, the FOMC predicted that they would make an additional half percentage point in cuts by the end of the year, followed by a full percentage point in 2025. The "dot plot" of individual officials' expectations indicated a terminal rate of 2.9%, which would imply another half percentage point of cuts in 2026.

Despite the Fed's decision to lower interest rates, markets have not responded positively. Treasury yields and mortgage rates have both increased since the September cut. Specifically, the 30-year mortgage rate has risen by approximately 0.7 percentage points to 6.8%, according to Freddie Mac. Similarly, the 10-year Treasury yield has also increased significantly.

The Fed aims to control inflation without triggering a recession, as indicated by its preferred inflation measure, which recently showed a 2.1% 12-month rate, while the core, excluding food and energy, was at 2.7%.