The Federal Reserve agreed to its second straight interest rate cut on Thursday. It took a less aggressive approach than before, but continued its efforts to right-size monetary policy.

Following the big half-percentage point cut in September, the Federal Open Market Committee cut its benchmark federal funds rate by a quarter of a percentage point, or 25 basis points, to a target range of 4.50% to 4.75%. The interest rate determines what banks charge each other for overnight loans, but it also often influences consumer debt instruments such as mortgages, credit cards and car loans.

Markets had largely expected this move, which was evident both at the September meeting and in follow-up comments from policymakers. The vote was unanimous, unlike the previous move, which marked the first time a Fed governor voted “no” since 2005. This time, Gov. Michelle Bowman agreed with the decision.

The statement after the meeting reflected some changes in the Fed’s view of the economy. Among them was a change in perspective on how to assess efforts to reduce inflation while supporting the labor market.

“The committee concludes that the risks to achieving its employment and inflation objectives are roughly balanced,” the document said, a change from September when it noted “greater confidence” in the process.

Fed officials have justified the easing of monetary policy by saying that they believe supporting employment will be at least as important a priority as curbing inflation.

On the labor market, the statement said: “Conditions have generally eased and the unemployment rate has increased but remains low.” The committee again said the economy “continued to grow at a solid pace.”

Officials have largely portrayed the policy change as an attempt to bring the interest rate structure back in line with an economy where inflation is drifting back toward the central bank’s 2 percent target while the labor market shows some signs of weakening. Fed Chairman Jerome Powell has spoken of “recalibrating” monetary policy so that it no longer needs to be as restrictive as it was when the central bank focused almost exclusively on containing inflation.

Powell will answer questions about the decision at his news conference at 2:30 p.m. The November meeting was postponed by one day due to the US presidential election.

There is uncertainty about how far the Fed will have to go with cuts as the macroeconomy continues to post solid growth and inflation remains a crushing problem for U.S. households.

Gross domestic product grew at a rate of 2.8% in the third quarter, less than expected and slightly below the second quarter level, but still above the historical trend for the U.S. of about 1.8% to 2%. Preliminary forecasts for the fourth quarter suggest growth of about 2.4%, according to the Atlanta Fed.

In general, the labor market has held up well. However, nonfarm payrolls rose by only 12,000 in October, although the weakness was partly due to storms in the Southeast and labor strikes.
The decision comes against a changing political background.

President-elect Donald Trump won a landslide victory in Tuesday’s election. Economists widely expect his policies, with his stated intentions of punitive tariffs and mass deportations for undocumented immigrants, to create challenges for inflation. However, during his first term, inflation remained low while economic growth prevailed outside the early stages of the Covid-19 crisis

Pandemic, kept strong.

Still, Trump has been a harsh critic of Powell and his colleagues during his first term, and the chairman’s term ends in early 2026. Central bankers are studiously steering clear of commenting on policy issues, but the Trump dynamic could affect the course of policy in advance.

An acceleration in economic activity under Trump could prompt the Fed to cut interest rates less, depending on how inflation responds.

Questions have arisen about what the “end point” is for the Fed, or the point at which it will decide that it has cut enough and has its key interest rate at a level that will neither boost nor slow growth. According to CME Group’s FedWatch tool, traders expect the Fed will likely approve another quarter-point rate cut in December and then pause in January to assess the impact of its tightening measures.

The FOMC indicated in September that members expected another half-percentage point cuts by the end of this year and another full percentage point in 2025.

The September “dot plot” of individual officials’ expectations suggested a final rate of 2.9%, which would mean another half percentage point of cuts in 2026.

Even when the Fed cut interest rates, markets did not respond accordingly.

Treasury yields have jumped since the September cut, as have mortgage rates. For example, the 30-year mortgage rose about 0.7 percentage points to 6.8%, according to Freddie Mac. The 10-year Treasury yield has risen almost as much.

The Fed is aiming for a “soft landing” for the economy, where it can lower inflation without triggering a recession. The Fed’s preferred inflation gauge most recently showed a 12-month rate of 2.1%, although the so-called core, which excludes food and energy and is generally considered a better long-term indicator, was at 2.7%.