Fed Issues Second Rate Cut as Political Gridlock, Tariffs Impact Economy

The U.S. Federal Reserve on Wednesday announced its second straight quarter-point interest rate cut to hedge against growing labor market risks, in a meeting that highlighted growing divisions among its ranks.

Policymakers voted 10-2 in favor of lowering the bank’s key lending rate to between 3.75% and 4%, the Fed said in a statement. Opposed to the action were Fed Gov. Stephen Miran, who backed a bigger half-point cut, and Kansas City Fed President Jeff Schmid, who “preferred no change to the target range for the federal funds rate at this meeting.”

The decision to cut rates boosts the U.S. economy as businesses digest the effects of President Donald Trump's sweeping tariffs, and buys policymakers some more time as they wait for the end of a government shutdown.

Republicans and Democrats remain politically gridlocked almost a month after the start of the shutdown, which has resulted in a suspension of publication of almost all official economic data.

The Fed also announced Wednesday that it would end its policy of shrinking the size of its balance sheet on December 1.

The Fed’s balance sheet ballooned in the early days of the Covid-19 pandemic, and has been gradually reduced in recent years.

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