‎Federal Reserve Cuts Interest Rates Again Amid Inflation and Job Market Struggles

‎The Federal Reserve has cut its benchmark interest rate by a quarter of a percentage point, marking the second rate reduction this year as the U.S. central bank works to stimulate economic activity and strengthen a slowing labor market. The decision highlights the Fed’s ongoing challenge of balancing rising inflation with signs of weakening employment growth.

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‎The Federal Reserve lowers interest rates for the second time this year to support a slowing U.S. economy as inflation and job concerns persist.

‎Kent Nishimura/Getty Images

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‎At a press conference following the announcement, Fed Chair Jerome Powell likened the economy to “driving in the fog,” explaining that policymakers are proceeding cautiously amid uncertainty. The cut is intended to lower borrowing costs for consumers and businesses, potentially reducing rates on credit cards and auto loans.

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‎The Fed’s accompanying statement noted that economic growth continues, but job gains have slowed and inflation remains elevated. Powell cautioned that the ongoing government shutdown, which began on October 1, is weighing on economic activity, though those effects may reverse once operations resume. Funding deadlines for federal worker salaries and essential programs are approaching, as congressional gridlock persists.

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‎Lower interest rates are expected to support spending and investment, but they also carry the risk of fueling further price increases. Inflation climbed to 3% in September, above the Fed’s 2% target. Powell acknowledged that tariffs imposed by President Donald Trump have contributed to higher prices, calling them “the biggest tax increase since the late 1960s,” according to economists like Luke Tilley of Wilmington Trust.

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‎The U.S. economy faces conflicting signals. Stock markets have surged to record highs, driven by a boom in artificial intelligence investments. Chipmaker Nvidia recently became the first company to reach a $5 trillion valuation. Yet, the labor market shows signs of strain. The unemployment rate stands at 4.3%, but the time it takes for job seekers to find work has lengthened significantly, resembling post-financial crisis trends.

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‎The ongoing government shutdown has halted key data releases, leaving the Fed with limited insight into real-time conditions. Economists at BNP Paribas warned that without updated figures, “the Fed’s task is further complicated.” Private data, including payroll processor ADP’s employment report, indicates a decline in hiring but does not cover the full labor force.

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‎Gross domestic product estimates have risen close to 4%, suggesting strong growth largely powered by AI-related investment. However, Fed officials remain divided on future policy. Powell emphasized that another rate cut at the December 10 meeting “is not a forgone conclusion,” noting “strongly differing views” within the committee.

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‎Fed Governor Christopher Waller underscored the uncertainty, stating that either economic growth must slow to align with the weaker labor market or the job market must rebound to match growth. He cautioned against acting too aggressively, warning that policy missteps could prove costly.

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‎Economists such as Neil Dutta of Renaissance Macro argue that inflation pressures may ease naturally as households reduce spending amid slower job creation. “Labor market slack continues to build,” Dutta wrote, suggesting that softer demand could help cool prices in the months ahead.

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‎The Fed’s delicate balancing act—between curbing inflation and preventing a deeper employment downturn—underscores the complex state of the U.S. economy heading into the year’s final quarter.