Monetary policy|The central bank has lowered its key interest rate three times this fall.
of the United States on Wednesday, the central bank decided to cut its key interest rate by 0.25 percentage points.
This is the third rate cut this year. It means that the key interest rate range will be reduced to 3.50–3.75 percent.
The drop in interest rates is primarily due to the fact that the labor market has weakened. When the central bank lowers its key interest rate, it tends to increase household consumption and business investment.
“The growth in the number of jobs has slowed down this year, and the unemployment rate has risen slightly during September,” the Open Market Committee, which decides on monetary policy, announces in its statement.
Director general Jerome Powell said at a press conference that after three rate cuts, the central bank is in a good position to monitor the development of inflation in the future.
The overall picture is still complicated.
The increase in consumer prices, or inflation, was 3.0 percent in September, which is clearly faster than the central bank’s price stability target of two percent. Rapid inflation would, at least in principle, have favored keeping the key interest rate unchanged.
The Open Market Committee’s decision was not unanimous. Of its members Stephen Miran would have lowered the policy rate by 0.50 percentage points. East of Goolsbee and Jeffrey Schmid on the other hand, supported keeping the key interest rate unchanged.
It is very unusual that the committee members’ assessments of the appropriate interest rate are so strongly divided.
“Due to the administrative shutdown, the central bank does not have access to the latest data on the development of the economy. There is considerable disagreement among the members of the Open Market Committee as to whether the emphasis is on curbing inflation or full employment,” says the chief analyst of the financial company Nordea Jan von Gerich.
of the United States in addition to price stability, the central bank’s goal is full employment. This year, the US economy is expected to grow more slowly than last year.
Based on the committee members’ assessments of the future, the central bank will cut its key interest rate once next year by 0.25 percentage points.
“Based on the wording of the Open Market Committee’s statement, it seems that the central bank will be clearly more cautious in its interest rate cuts in the future than in the autumn. The views of the committee members are significantly divided and the risks of inflation have not disappeared,” says the senior market economist of the financial group OP-Pohjola Jari Hännikäinen.
The main inflation risk is still the large import duties imposed by the United States, with which it seeks to protect domestic production from foreign competition.
The central bank’s views on the future were in line with financial market expectations to such an extent that there were no significant changes in the securities market on Wednesday.
The central bank The US economy will grow by 1.7 percent this year, 2.3 percent next year, 2.0 percent in 2027 and 1.9 percent in 2028, according to a new economic forecast released Wednesday.
The forecast for next year’s economic growth is considerably better than in the September forecast. At that time, the central bank predicted that the economy would grow by 1.8 percent in 2026.
Inflation is forecast to accelerate to 2.9% this year, but slow to 2.4% next year, 2.1% in 2027 and 2.0% in 2028.