The Federal Reserve approved a quarter-point interest rate cut on Wednesday, the third consecutive interest rate reduction since the Fed resumed easing monetary policy in September.
The move brings the Fed’s benchmark rate down to a range of 3.50 to 3.75 percent. The Fed also announced a reduction in the interest paid to banks on reserves to 3.65 percent.
“Available indicators suggest that economic activity has been expanding at a moderate pace,” the Fed said in a statement released announcing the cut. “Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.”
Nine of 12 voting officials on the Federal Open Market Committee, the Fed’s monetary policy body, supported the quarter-point cut. Fed Governor Stephen Miran, who served as a senior White House adviser until his confirmation to the central bank board in September, dissented, favoring a larger half-point cut. This is his third meeting and third dissent favoring a half-point cut when the Fed moved to cut by a quarter point.
Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid also dissented, preferring to leave the Fed target unchanged. This was the first time three officials have dissented at a single meeting since 2019.
The projections of Fed officials released Wednesday showed the central bankers deeply divided about the year ahead. Three officials indicated they expect today’s rate cut to be reversed by the end of next year. Four penciled in no more cuts next year. Four officials indicated they expect one cut next year and another four said they expect two cuts. Two officials expect three cuts, one expects four cuts, and one official—likely Governor Miron—indicated six cuts. That puts the range of rates expected next year to span 2.1 percent to 3.9 percent, an unusually wide dispersion. The median expectation is for the Fed to cut rates one more time next year, which would bring the Fed funds rate to a range of 3.25 to 3.5 percent.
While only 12 officials—the Fed chairman, the six other Fed governors, the President of the New York Fed, and a rotating group of four other regional Fed presidents—vote on the FOMC, 19 officials submit projections. The larger group includes the non-voting presidents of the regional Fed banks.
The Fed directly controls two rates, the overnight intrabank borrowing rate called the Fed funds rate and the rate paid to banks on their reserves. The expected path of these short-term rates influences longer-term interest rates on mortgages, auto loans, corporate borrowing, and bonds issued by the federal government.
The 10-year Treasury yield was down by 0.016 of a percentage point to 4.17 percent on Wednesday after the announcement. That is slightly higher than the rate was at the end of October, when the Fed last met. The two-year Treasury yield fell by 0.033 percentage point to 3.578 percent.
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