U.S. Federal Reserve cuts interest rates by another quarter point
CBC
The U.S. Federal Reserve cut its key interest rate Wednesday by a quarter-point — its third cut this year — but also signalled that it expects to reduce rates next year more slowly than previously thought, with inflation still well above the central bank's two per cent target.
The Fed's 19 policymakers projected that they will cut their benchmark rate by a quarter-point just twice in 2025, down from their September estimate of four rate cuts. Their new projections suggest that consumers may not enjoy much lower rates next year for mortgages, auto loans, credit cards and other forms of borrowing.
Fed officials have underscored that they are slowing their rate reductions as their benchmark rate nears a level that policymakers refer to as "neutral" — the level that is thought to neither spur nor hinder the economy.
Wednesday's projections suggest that the policymakers may think they are not very far from that level. Their benchmark rate stands at 4.3 per cent after Wednesday's move, which followed a steep half-point reduction in September and a quarter-point cut last month.
"I think that a slower pace of [rate] cuts really reflects both the higher inflation readings we've had this year and the expectations that inflation will be higher" in 2025, chair Jerome Powell said at a news conference.
"We're closer to the neutral rate, which is another reason to be cautious about further moves.
"Nonetheless," Powell said, "we see ourselves as still on track to cut."
The Canadian loonie slid further against the U.S. dollar — which continues to outperform other currencies — in reaction to the cut on Wednesday afternoon.
"Jerome Powell was talking about a U.S. economy that is clearly outperforming not just domestic expectations, but also the rest of the world," said Karl Schamotta, chief market strategist at Corpay, a payment management company Toronto.
"That means U.S. interest rates are high, and that's making U.S. markets the best place in the world to park money."
Several other factors have driven the loonie's decline over the last few months and years, including the end of a "supercycle" that saw high demand for Canadian energy, as well as high household debt slowing consumer spending and Trump's threat of a 25 per cent tariff on Canadian goods.
With that, "you have essentially a deadly cocktail for the Canadian dollar," Schamotta told CBC News. And the loonie could sink "at least a couple of cents lower" if Trump goes through with his threat.
That would hit the exports sector hard. Consumer sentiment in Canada would sink, and businesses would pull further back on investment, Schamotta said.
"All of that would mean that Canada would very likely topple into a recession."
