Fed Delivers Another Rate Cut

The Federal Reserve cut its key interest rate Wednesday for the second time this year. The quarter-point rate cut, which follows a quarter-point cut last month, was widely expected, the Wall Street Journal reports. The cut lowers the rate to a range of 3.75% to 4%, marking the first time since late 2022 that rates have fallen below 4%, reports the New York Times. The vote from the central bank's Federal Open Market Committee was 10-2, with two dissents for different reasons. Governor Stephen Miran favored a half-point cut and St. Louis Fed President Jeffrey Schmid wanted to hold the rate steady, CNBC reports. The Fed also announced that it is ending "quantitative tightening," the shrinking of its balance sheet.

The government shutdown has cut off much of the data the Fed relies on, including inflation and employment figures, reports the AP. Figures released by payroll processor ADP Tuesday signaled that hiring is picking up again, meaning there may not be as much justification for future rate cuts. Last week's delayed inflation report, however, showed inflation isn't accelerating, meaning high rates may not be needed to tame it, though it remains above the Fed's 2% target.

Stocks rose ahead of the interest rate announcement, with the Dow Jones Industrial Average rising above 48,000 for the first time, but they slipped after Fed chair Jerome Powell warned that future rate cuts are not guaranteed, the AP reports. He said it was far from a "foregone conclusion" that there will be another rate cut after the December meeting. "That needs to be taken off the board," he said.

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Investors had been closely watching Powell's remarks, hoping for confirmation of a third rate cut at the central bank's final meeting of the year. "I would expect him to try to walk a middle ground, not tip his hand necessarily, on December," Bill English, the Fed's former director of monetary affairs, told CNBC earlier Wednesday. "I don't think he wants to be locked into a rate cut in December. But on the other hand, it does seem like he's worried about the labor market and about the outlook for real activity, so he doesn't want to come across as hawkish." This story has been updated with Powell's remarks.