Fed slashes rates just weeks before US election

The US Federal Reserve dramatically cut interest rates for the first time in more than four years on Wednesday night in an effort to support the world’s biggest economy.

The central bank reduced borrowing costs by 0.5 percentage points - a larger than average cut - in what was the first reduction in borrowing costs since the onset of Covid in March 2020.

The “dot plot” published by the central bank also indicated that interest rates could be cut by another half a percentage point before the end of the year. The Fed’s next decision will be announced on November 7, after the US election on November 5.

The decision came hours before the Bank of England’s latest rate-setting meeting on Thursday, at which policymakers are expected to hold rates steady after cutting interest rates for the first time in four years in August.

The Fed’s cut was accompanied by a warning that the outlook for the world’s largest economy was “uncertain”.

However, chairman Jerome Powell insisted that the large reduction was a sign that the fight against inflation was coming to an end and said the US economy was healthy, despite concerns it could be heading towards recession.

Mr Powell said: “Our patient approach over the past year has paid dividends. Inflation is now much closer to our objective, and we have gained greater confidence that inflation is moving sustainably toward 2pc.

“The labour market is in solid condition and our intention with our policy today is to keep it there. You can say that with the whole economy.”

Donald Trump and his supporters seized upon the size of the Fed move to claim it was a political decision.

The former president told reporters: “To cut it by that much, assuming they’re not just playing politics, the economy would be very bad.”

The timing of the rate cut, less than two months before the election, is seen as beneficial to Kamala Harris, who is fighting an incumbent campaign.

The Vice President said the rate cut was “welcome news for Americans who have borne the brunt of high prices.”

Senator Tommy Tuberville, of Alabama, said on X: “The Fed’s drastic rate cut is shamelessly political. Our nation’s central bank has no business moving rates this close to an election and is clearly trying to tip the balance in favor of Kamala Harris.”

Mr Trump earlier this year accused Mr Powell of being “political” and said he would cut interest rates to “help the Democrats”.

The Fed’s decision to begin cutting rates on Wednesday marked the closest the central bank has come to a US presidential election when launching an easing cycle in nearly half a century.

While interest rate policy is rarely static during election years, kicking off a brand new rate-cutting phase with fewer than 10 weeks to polling day has happened only twice before - in 1976 and in 1984.

Mr Powell insisted that Fed officials gave no consideration to the election in their decision.

He said: “This is my fourth presidential election at the Fed. It’s always the same. We’re always going into this meeting in particular and asking, ‘What’s the right thing to do for the people we serve?’ We do that and we make a decision as a group and we announce it. That’s always what it is. Nothing else is discussed.”

The decision to cut rates had been widely expected ahead of the meeting, amid slowing inflation and signs of a weakening economy.

Mr Trump told a town hall in Flint, Michigan, on Tuesday night earlier this week that a rate cut would suggest the “economy is now not good … Otherwise, you wouldn’t be able to do it.”

The former president has previously suggested he would take away the Fed’s independence if re-elected and set interest rates himself.

“I think that in my case, I made a lot of money, I was very successful, and I think I have a better instinct than in many cases, people that would be on the Federal Reserve or the chairman,” Mr Trump said in August.

The Fed’s move brings its target lending rate to a range of 4.75pc to 5pc, down from 5.25pc to 5.50pc.

The decision instantly boosted markets, with the S&P 500 up by as much as 0.6pc up and tech-heavy Nasdaq 0.8pc.

Mr Powell said recent data “indicates an economy that is still growing at a solid pace” despite a flurry of data suggested that the US labour market is cooling. The US economy added fewer jobs than expected both in July and August.

The remarks suggest that a so-called soft landing is still within reach, meaning inflation will have fallen without high interest rates triggering a recession.

Inflation in the US currently stands at 2.5pc, although fears still linger over price pressures in the housing market.

Figures earlier on Wednesday morning showed that UK inflation held steady last month at 2.2pc, according to the Office for National Statistics (ONS). This was unchanged from July despite a big jump in European airfares as parents took their children away for the school holidays. The headline rate was also in line with economists’ expectations.

08:42 PM BST

Signing off...

Thanks for joining us for our live coverage of the Fed decision, which has brought a half a percentage point cut to US rates.

The Bank of England is making its own announcement tomorrow at noon - although it is widely expected to keep rates unchanged.

08:35 PM BST

Biden: ‘we just reached an important moment’

US president Joe Biden has posted on social network X that America has “just reached an important moment: Inflation and interest rates are falling while the economy remains strong”.

08:28 PM BST

Fed might have cut rates in July had it seen that month’s jobs report, Powell says

The Fed might have first cut interest rates in late July had it seen the jobs report for the month, released days later, that showed softening in the US labour market, chairman Jerome Powell said this evening.

He told reporters:

08:25 PM BST

Independent central banks better, says Powell, despite Trump criticism

Countries with central banks independent from control by politicians have better inflation outcomes, Jerome Powell told reporters just before wrapping up tonight’s press conference.

US Federal Reserve policymakers discuss “nothing else” but how to serve the public as it meets on interest rates, Fed Chair Jerome Powell said Wednesday.

“Our job is to support the economy on behalf of the American people, and if we get it right, this will benefit the American people significantly,” Mr Powell said. “We don’t put up any other filters.”

Donald Trump has repeatedly criticised Mr Powell, who he first appointed to run the Fed, and has suggested that its decisions are political - accusations the US central bank has strongly refuted.

The former president recently suggested the US president should have “at least” a say over Fed decisions.

08:23 PM BST

Big cut sends dollar on ‘on a downward spiral’

The dollar has been sent ‘dollar on a downward spiral’, according to Kathleen Brooks, research director at XTB:

08:16 PM BST

Powell says Fed is not saying ‘mission accomplished’ on inflation

Tonight the Fed came closer than it has before to declaring victory over inflation. Jerome Powell, the Fed chair, said:

08:09 PM BST

Housing inflation is dragging - but real problem is lack of supply

Housing inflation is one piece that is dragging a bit, Jerome Powell told reporters tonight. But he added that the Fed cannot fix issues with housing supply.

The supply problem is for the market and US government to solve, he said.

08:06 PM BST

Powell doesn’t believe Fed waited too long to cut

Fed chair Jerome Powell said he does not believe the central bank waited too long to cut its interest rate target.

“We don’t think we’re behind” on the need to cut rates given the outlook, Mr Powell said.

“We’ve been very patient” with monetary policy and “we’ve waited, and I think that patience has paid dividends” in the form of a convincing lowering of inflation.

08:04 PM BST

Wall Street advances after Fed cuts rates

US stocks briefly shot higher on Wednesday after the Federal Reserve cut interest rates by 50 basis points, the high side of estimates for its first cut in more than four years.

Citing a “greater confidence” that inflation is moving toward the central bank’s 2pc target, the Fed cut rates by half of a percentage point, as it now focuses on keeping the labour market healthy.

Trading was choppy. Prior to the announcement, the S&P 500 oscillated between modest gains and losses. The benchmark rose as much as 1pc after the announcement before paring gains.

Brian Jacobsen, chief economist at Annex Wealth Management, said:

08:03 PM BST

Middle Eastern central banks copy Fed

The United Arab Emirates and Bahrain have cut their interest rates tonight by half a percentage point, matching the cut by the Fed. Qatar cut rates by an even bigger 0.55 of a percentage point, while Kuwait cut a key interest rate by a quarter of a percentage point.

07:57 PM BST

‘Big surprise’ is future steer on rate cuts

Peter Cardillo, a chief market economist at Spartan Capital Securities, says there was a “big surprise” in the Fed’s announcements tonight:

07:56 PM BST

Jumbo rate cut ‘controversial’, says economist

Today’s rate cut was “controversial”, an economist has said.

Brian Jacobsen, chief economist at Annex Wealth Management, said:

07:54 PM BST

Fed ‘didn’t rock the boat too much’, says analyst

Ryan Detrick, chief market strategist at Carson Group, said:

07:52 PM BST

US close to full employment, says Powell

Fed chair Jerome Powell promised “close watching” of the labour market, saying that “clearly labour market conditions have cooled off”.

But the US economy is doing well and it is still close to having full employment, he said.

“The labour market is actually in solid condition,” he said. “Our intention with our policy move today is to keep it there.”

07:49 PM BST

Labour market strength can be maintained with appropriate policy

The US central bank is increasingly confident that strength in the jobs market can be maintained with an “appropriate recalibration” of policy, Fed chair Jerome Powell said this evening.

His comments at a press conference came after the Fed opted for a bolder half percentage point interest rate cut, with Mr Powell noting: “Our economy is strong overall and has made significant progress toward our goals over the past two years.”

07:48 PM BST

Future cuts will be decided ‘meeting by meeting’

Future interest rate cuts will be decided “carefully meeting by meeting”, Fed chair Jerome Powell told a press conference tonight.

He said that the labour market has continued to cool and has been a notable step down from earlier this year. But he said that he has confidence that strength in the labour market can be maintained.

07:41 PM BST

US rate cuts will be ‘a marathon and not a sprint’

A marathon of US rate cuts is coming, according to Isaac Stell, investment manager at Wealth Club:

07:39 PM BST

Smaller companies jump on rate cut

American small cap stocks have surged since 7pm.

The Russell 2000 index of small US companies is up 1.5pc, having been prety flat during the afternoon.

Smaller listed companies are seen as particularly likely to benefit from lower interest rates.

07:35 PM BST

Financial markets betting on more rate cuts than Fed projects

Financial markets are betting that the Fed will deliver more rate cuts by the end of the year than the Fed’s own policymakers project.

Interest-rate futures are pricing in a quarter-point cut in November and a half-point rate cut in December.

The Fed is projecting two quarter-point cuts.

07:26 PM BST

Gold hits a record after Fed rate cut

The price of gold hit an all-time record as spiked after the interest rate decision.

The price is up 0.9pc today at $2597, which is 34pc higher than a year ago.

Lower interest rates make gold, which does not generate interest or dividends, more attractive.

07:24 PM BST

Dollar drops as Fed cuts rates by half a percentage point

The dollar dropped after the Federal Reserve this evening cut interest rates by half a percentage point.

The US dollar index (comparing the dollar to a basket of six currencies) was down 0.46pc on the day at 100.45, the lowest since July 2023.

The dollar is down 0.86pc against the pound today.

07:17 PM BST

Wall Street rises after rate cut

Wall Street is up after the Fed decision, even though many investors had already expected a supersized half point cut.

The Nasdaq is up 0.5pc, while the S&P 500 and Dow Jones are both up 0.3pc.

07:14 PM BST

Rate cut will boost shares, says fund manager

Michael Sheehan, a fund manager at EdenTree Investment Management, said:

07:11 PM BST

Fed has ‘greater confidence that inflation is moving sustainably toward 2pc’

The US central bank has cut interest rates for the first time in more than four years as UK rate-setters are expected to hold on Thursday.

The Federal Reserve in a dramatic move lowered interest rates by 0.5 percentage points on Wednesday night, warning the economic outlook was “uncertain”.

The central bank’s rate-setting committee said in a statement: “The Committee has gained greater confidence that inflation is moving sustainably toward 2pc, and judges that the risks to achieving its employment and inflation goals are roughly in balance.

“The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

The first rate cut in the US since March 2020 when Covid struck instantly boosted markets, with the S&P 500 up 0.6pc up 0.8pc.

However there is likely to be some concern as it suggests the Fed sees the economy as weaker than expected.

It comes as rate-setters at the Bank of England on Thursday will vote on whether to cut interest rates for a second time this year, although they are widely expected to hold.

The Fed’s rate cut comes after a flurry of data suggested that the US labour market is cooling and price pressures easing.

Democratic candidate Kamala Harris is likely to use the outsized cut as proof to voters that the party has presided over falling inflation and a growing economy.

Republican candidate Donald Trump earlier this year accused Mr Powell of being ‘political’ and said he would cut interest rates to “help the Democrats”.

07:10 PM BST

Fed rate cut closest to a election in nearly 50 years

The Federal Reserve’s decision to cut interest rates by half a percentage point on Wednesday marked the closest the central bank has come in launching an easing cycle on the cusp of a US presidential election in nearly half a century.

While interest rate policy is rarely static during election years, kicking off a brand new rate-cutting phase with fewer than 10 weeks to Election Day has happened only twice before now - in 1976 and in 1984.

The US central bank is an independent federal agency, and Fed chairman Jerome Powell and other policymakers consistently say political considerations - including approaching elections - do not factor at all in their decisions on interest rates.

“This is my fourth presidential election at the Fed,” Mr Powell said in a press conference following the Fed’s policy meeting in late July. “Anything that we do before, during, or after the election will be based on the data, the outlook, and the balance of risks and not on anything else.”

But Republican presidential nominee Donald Trump claimed earlier this year he thought the Fed might lower rates to help Democrats in the Nov 5 election. Trump said last month that presidents ought to have a say over Fed decisions.

Vice President Kamala Harris, the Democratic presidential nominee, said only that she would respect the Fed’s independence. “As president, I would never interfere in the decisions that the Fed makes,” she said last month.

07:05 PM BST

Fed rate setters vote 11-to-1 for tonight’s big cut

The Federal Reserve has made its first reduction since the pandemic, sharply lowering borrowing costs shortly before November’s presidential election.

Policymakers voted 11-to-1 in favour of lowering the US central bank’s benchmark lending rate to between 4.75 percent and 5.00 percent.

They also penciled in an additional half-point of cuts before the end of the year.

07:03 PM BST

Fed makes supersize cut as it warns ‘the economic outlook is uncertain’

The Federal Reserve has cut rates but warned that “ehe economic outlook is uncertain”. It said:

07:01 PM BST

US cuts rates for first time in four years

The US Federal Reserve has cut interest rates this evening for the first time in more than four years. At 7pm, the Fed said rates would be cut by half a percentage point to 4.75pc to 5pc.

Senior officials at the US central bank including Mr Powell had indicated that a rate cut was coming, as inflation eases toward the bank’s long-term target of two percent, and the labour market continues to cool in the post-Covid economy.

It comes on a day of uncertain trading on Wall Street, with traders and analysts trying to guess how sharply the Fed would lower its benchmark lending rate from what was a 23-year high of between 5.25pc and 5.50pc.

Wall Street indexes slipped in volatile trading today ahead of the decision, with jitters over the magnitude of the reduction dominating the mood. The FTSE 100 closed down 0.7pc.

The Fed move comes a day before the Bank of England will set Britain’s interest rates, which currently sit at 5pc. Most economists are expecting the bank to keep rates unchanged.

06:49 PM BST

US interest rates expected to fall for first time in four years

The US Federal Reserve is all but certain to cut interest rates this evening for the first time in more than four years. However, the size of the reduction is unusually hard to predict.

Its rate decision is expected at 7pm, and will be followed by a press conference with Fed chairman Jerome Powell.

Senior officials at the US central bank including Mr Powell have indicated that a rate cut is coming, as inflation eases toward the bank’s long-term target of two percent, and the labour market continues to cool in the post-Covid economy.

Traders and analysts remain uncertain about how sharply the Fed will lower its benchmark lending rate from the current 23-year high of between 5.25pc and 5.50pc.

Some are predicting a smaller cut of a quarter of a percentage point, while others believe a bigger half-point reduction is in the works.

A smaller cut would be a more predictable move, while a bigger cut would do more to boost demand - while also running the risk of reigniting inflation.

Erica Groshen, a senior economics advisor at the Cornell University School of Industrial and Labor Relations, said:

Wall Street indexes slipped in volatile trading today, with jitters over the magnitude of the reduction dominating the mood. The FTSE 100 dropped 0.7pc.

06:39 PM BST

Market sentiment ‘very volatile’, says City firm

The stock market is looking “increasingly fragile”, a City investment bank has said.

Susana Cruz, a strategist at Panmure Liberum, said:

Bloomberg reported that she prefers UK stocks to those listed in Europe and the US.

06:10 PM BST

Rapid cuts to rates not needed, says top US economist

Mixed economic indicators over past month have made investors nervous ahead of the least-predictable Fed decision in years.

Borrowing costs have stayed at their highest levels in over two decades since July 2023, when the Fed last hiked interest rates by a quarter percentage point to between 5.25pc and 5.50pc to combat inflation. But the focus recently has moved to worries about employment.

Dovish commentary from present and former Fed officials recently have led traders to price a 58pc chance of a bigger half point reduction, according to latest data.

Still, some analysts caution that an supersized move from the central bank could spook markets as it would be inconsistent with how the Fed has begun prior easing cycles outside of any brewing crisis.

If the Fed cuts by half a percentage point instead of a quarter point, it will skip reducing rates next month, according to Erica Groshen, an economist at Cornell University who was formerly commissioner of the US Bureau of Labor Statistics.

She added that if it is the other way round, the central bank will lift its “foot off more rapidly” next month. She said:

05:48 PM BST

Wall Street flat as traders pause for rate cut news

The S&P 500 has been wavering this afternoon as traders await the Fed’s decision, due at 7pm.

The index is just above the opening level, while the Dow Jones and Nasdaq are just below.

05:35 PM BST

UK interest rates ‘will only be lowered gradually’, says merchant bank

The pound remains up against the dollar today following new inflation data, which further pressured the FTSE 100’s export-focused companies.

Evidence of persistent inflationary pressures led traders to trim bets on the Bank of England cutting rates at its meeting tomorrow, where policymakers are expected to keep rates on hold.

Andrew Wishart, senior UK economist at merchant bank Berenberg, said:

05:25 PM BST

‘A bit of post-action volatility’ could hit after Fed announcement today

The London Stock Exchange swung into the red on Wednesday as investors nervously await interest rate decisions from central banks in the US and the UK.

The US Federal Reserve is expected to announce a rate cut at 7pm, while the Bank of England is widely expected to keep rates unchanged when it gives an updated tomorrow at noon.

The FTSE 100 fell 0.7pc, while the major US indexes are roughly flat.

Danni Hewson, head of financial analysis at AJ Bell, said:

05:15 PM BST

Markets are more confident about a supersized rate cut than economists

There is a fair amount of anxiety in the markets this afternoon over how big the Fed’s rate cut tonight will be.

Ben Woodward, a chartered financial analyst at Waterloo Capital in Texas, says that traders and economists have different views of what the Fed will announce:

05:05 PM BST

Interest costs will still rise despite tonight’s expected rate cut, says economist

Interest rates as faced by American companies will still rise, despite the likely rate cut tonight, a leading economist has said. Nick Forrest, of consultancy Baringa, said:

04:58 PM BST

‘The market has never been so much in the dark, other than during Covid’, says Charles Schwab

A debate over the size of tonight’s Fed rate cut “rages on”, according to Cooper Howard, director of fixed income strategy at Charles Schwab. He said:

04:37 PM BST

‘High potential for market whiplash’, says wealth manager

There could be a lot of market noise tonight after the Fed announces its plans for interest rates.

Peter Boockvar, chief investment officer at Bleakley Financial Group in New Jersey, said:

According to Tom Essaye, of Sevens Report Research, tonight’s rate cut is much less important than the steer the Fed gives over future rate cutting:

04:29 PM BST

US stock prices will do well from rate cuts

US stock prices are expected to get a boost from interest rate cuts. But the increase could be limited because US stock prices have already been heavily bid up, an economist has suggested.

Daniel Grosvenor, director of equity strategy at Oxford Economics, said:

04:26 PM BST

FTSE pushing downwards amid market nerves

The FTSE has been falling throughout trading today as traders await news from the US. The FTSE 100 is down 0.7pc, while the FTSE 250 has dropped 0.6pc.

Across the Pond, the S&P 500 and Nasdaq are down 0.1pc, while the Dow Jones is down 0.2pc.

On the Continent, Germany’s Dax is down 0.1pc and France’s Cac 40 is down 0.5pc.

04:18 PM BST

Bond yields rise after traders take ‘unbalanced’ view of rate cuts

Bond yields have been rising today as traders waver over whether they have been overconfident over the scale of rate cuts.

Benchmark US 10-year Treasury notes have risen to 3.69pc from 3.66pc late on Tuesday.

UK 10-year gilts rose to 3.86pc from 3.77pc last night.

The euro zone benchmark, Germany’s 10-year government bond, is 2.20pc, up from 2.15pc yesterday.

George Catrambone, head of fixed income at DWS Americas, told Bloomberg:

04:09 PM BST

‘A lot of money will be made and lost today’, says Deutsche Bank

Wall Street’s main stock indexes are broadly flat this afternoon, while the dollar weakened, as traders weighed up the odds that the Federal Reserve’s expected decision to cut interest rates for the first time in more than four years could be a supersized move.

Financial markets are fully pricing in a quarter-percentage point rate cut, while the odds of a more unusual half-point cut stood at 63pc, according to LSEG data, up from as little as 14pc a week ago.

A Deutsche Bank analyst said in a note:

The Dow Jones Industrial Average is down by 0.2pc, the S&P 500 is flat and the Nasdaq Composite is up 0.1pc.

04:05 PM BST

Britain will stall as America cuts rates, claims think tank

Britain could be left behind while America’s economy gets a boost from rate cuts, according to a free-market think tank.

Maxwell Marlow, research director of the Adam Smith Institute, told The Telegraph:

03:56 PM BST

Fed decision ‘could provoke a good bit of trading volatility’

Analysts are predicting a singificant market reaction to tonight’s rate decision.

Patrick O’Hare, an analyst at Briefing.com, said:

Debate over the past weeks has been on whether the US central bank will cut by a quarter or half point after the country’s inflation rate sharply cooled, with CME’s FedWatch Tool now ascribing about a 60 percent probability of a half point cut.

The argument against a larger cut is that it could spook markets by signalling that the Fed is worried about the state of the economy, while a smaller cut could disappoint investors who think the Fed has been too cautious in the face of signs of a slowing US economy.

03:48 PM BST

Markets too confident about the number of rate cuts

Traders are betting on US interest rates being cut by a full percentage point by the end of the year.

But Daniel Ivascyn of investment giant Pimco believes that the markets are going too far.

Bloomberg reported that Mr Ivascyn, who manages the $163bn (£123bn) Pimco Income Fund, said:

03:41 PM BST

Pound hits two-year high ahead of ‘pivotal’ US interest rate decision

The value of the pound has surged to its highest in two years ahead of the Federal Reserve’s next decision on interest rates.

Sterling has risen 0.6pc today against the dollar to $1.323, which it has not reached since March 2022.

It comes as policymakers in the US are expected to cut borrowing costs for the first time in four years.

Money markets indicating there is a 66pc chance that this will be by an outsized half a percentage point from the present range of 5.25pc to 5.5pc, where interest rates have stood since July last year.

Meanwhile, the Bank of England is widely expected to keep interest rates unchanged at 5pc on Thursday, after services inflation rose from 5.2pc to 5.6pc in August.

David Morrison, senior market analyst at Trade Nation, said the meeting is “likely to trigger some market turbulence”.

He said: “It’s extremely rare to go into a Fed meeting with this amount of uncertainty. This is extremely unfortunate given the pivotal nature of tonight’s decision.”

Deutsche Bank analyst Jim Reid said: “You’d have to go back over 15 years to find such an uncertain situation this close to the decision. A lot of money will be made and lost today.”

03:37 PM BST

Wall Street dips as market awaits interest rate decision

The S&P 500 and Dow Jones Industrial average are slighly down this afternoon as markets await this evening’s interest rate announcement. The tech-heavy Nasdaq is very slighly up.

Adam Vettese, market analyst at investment platform eToro, said:

03:31 PM BST

Federal Reserve expected to cut interest rates

Welcome to our live updates on the US Federal Reserve’s latest monetary policy meeting, in which it is expected to cut interest rates for the first time in four years.

We are expecting the decision to be announced at 7pm UK time (2pm Eastern) with a press conference held by chairman Jerome Powell about half an hour later.