The US Federal Reserve cut interest rates on Thursday night in a boost for incoming president Donald Trump.
The central bank voted to lower rates by a quarter of a percentage point, two days after the worries about the economy under the Democrats helped propel Mr Trump back into power.
It said that “economic activity has continued to expand at a solid pace” while “inflation has made progress toward the committee’s 2pc objective but remains somewhat elevated”. It warned, however, that “the economic outlook is uncertain”.
The US federal funds rate is now 4.5pc to 4.75pc from 4.75pc to 5pc previously.
The decision is a boost for the economy as Donald Trump prepares to take up office again in the White House amid promises of a stronger economy under his leadership.
His election chances were boosted by a cost of living crisis and higher interest rates under Joe Biden in the aftermath of the Covid pandemic. Voters remembered better days under the first Trump administration.
The Fed’s cut came despite the potential of higher inflation from Mr Trump’s policies. He is pushing for tariffs and other policies that economists say would drive prices higher, along with the economy’s growth.
Before Thursday evening’s decision, traders had already begun paring forecasts for how many cuts to interest rates the Fed will deliver next year as a result of Mr Trump’s re-election.
Expectations for such cuts have been a major reason the S&P 500 has set dozens of records already this year.
Speaking at a press conference, Fed chairman Jerome Powell said that “in the near term, the election will have no effects on our [interest rate] decisions”.
“We don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy would be,” he added. “We don’t guess, we don’t speculate and we don’t assume.”
In advance of the Fed decision, the Bank of England cut interest rates by a quarter point on Thursday for only the second time since 2020, but said future reductions were likely to be gradual, as it saw higher inflation after the new government’s first budget last week.
The Fed cut came on the day CNN reported that a senior adviser to Mr Trump had indicated that the President-elect is likely to allow Mr Powell to serve the remainder of his term as the Federal Reserve chair, which ends in May 2026.
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