Market News

The US central bank has cut interest rates for the second time this year in a move consistently sought by President Trump.

Rates were brought down by a quarter of a percentage point to 3.75%-4%. Unlike the UK, the US interest rate is a range to guide lenders rather than a single percentage.

The Federal Reserve, known as the Fed, has opted for the cut despite the absence of economic announcements due to the government shutdown.

Latest employment figures were not published, as all non-essential functions of government are frozen over the inability of Republican and Democratic legislators to agree on a spending package.

The absence of these figures makes it trickier for the Fed to assess the state of the economy and meet its dual mandate to keep inflation steady and maintain maximum employment.

Data on price rises, however, showed inflation hit 3% in September, one percentage point above the Fed's 2% target but lower than anticipated by economists.

The fact that concerns over spiralling inflation, fuelled by Mr Trump's tariff-induced trade war, have not materialised, has facilitated the cut.

Interest rates had been held amid warnings from Fed chair Jerome Powell that the US economy would grow less and goods would become more expensive due to hiked taxes on imports and the associated disruption in supply.

Mr Powell and the Fed in general have, as a result, been the subject of Mr Trump's ire. The president sparked a crisis over the Fed's independence when he moved to remove rate-setter Lisa Cook from her post at the Federal Reserve on alleged mortgage fraud grounds, which she denied.

Before the first interest rate drop of his term, in September, Mr Trump had threatened to remove Mr Powell, calling him a "stupid person" and saying he "should be ashamed". The animosity comes despite Mr Trump appointing Mr Powell during his first presidential term.

What next?

The prospect of an interest rate cut was one of the factors boosting US and European stock markets in the days running up to the vote, with major stock indexes reaching record highs. Further increases are likely to be seen due to the decision.