US cuts interest rates as Trump’s election raises uncertainty

The U.S. central bank has cut its key interest rate again as the election of Donald Trump as president casts new uncertainty on the future of borrowing costs.

The cut puts the Federal Reserve’s lending rate at 4.5%-4.75%.

It marks the second straight decline after the Fed cut rates for the first time in more than four years in September, reflecting confidence that rising rates are finally stabilizing.

Forecasters expected borrowing costs to fall sharply in the coming months but warned that Trump’s plans for tax cuts, immigration and tariffs could keep inflationary pressures high and increase government borrowing, making those bets difficult.

Interest rates on US debt have already jumped this week, reflecting that concern.

The decision comes on the same day the Bank of England warned it could take a long time for borrowing costs to come down, warning that inflation could rise sharply after last week’s Budget.

“On both sides of the pond, we are seeing expectations for future rate cuts significantly pushed back compared to what many initially expected,” said Lindsay James, investment strategist at Quilter Investors.

“In the US, it looks like interest rates will remain high for a long time as the Fed will need to tread carefully until it is better able to assess the true impact of Trump’s plans.”

Fed chairman Jerome Powell said on Thursday it was too early to say how the new administration’s agenda would affect the US economy.

“It’s too early – we don’t know what the policies are, we don’t know when they will work,” he said. “In the near future, elections will not influence our policy decisions.”

As well as raising uncertainty about future rate decisions, the election could also pose new political challenges for Mr Powell, who was nominated to chair the Fed by Trump but has since become the target of frequent criticism.

American media reported that Trump’s allies were looking for ways for the White House to ensure more control over the Fed.

On Thursday, Mr Powell responded to suggestions that the incoming president may have the power to shake up senior staff at the bank.

He said he would not step down if Trump asked and said it was “not allowed under the law” for the White House to force him out.

Mr Powell has faced intense scrutiny over the past few years, with rates starting to rise in 2022.

The bank responded by hiking rates quickly that year, eventually raising them from near zero to around 5.3% as of July – the highest rate in more than two decades.

That increase has affected society in the form of higher costs for credit cards, mortgages and other debts.

The Fed began to reverse course in September, cutting rates by 0.5 percentage points more than usual, saying it was confident that the pace of inflation in the US was stabilizing.

Inflation in the US stood at 2.4% in September, down from more than 9% in June 2022, according to the latest official figures.

The cuts were announced on Thursday, which many expected and unanimously, reduced prices by 0.25 percent.

Mr Powell said on Thursday that officials remained equally focused on keeping prices stable and the labor market healthy.

Although concerns were raised earlier this year about a rise in unemployment, those were silenced in September, after data showed an unexpected burst of employment.

However, the latest figures showed almost no job growth in October, when the country was hit by hurricanes and strikes.

He said officials expect to continue lowering rates, but how fast and how far remains to be seen, but he resisted questions seeking specific guidance.

“We don’t think it’s a good time to make further guidelines – there’s a fair amount of uncertainty,” he said. “The point is to find the right speed and destination as we go.”