Federal Reserve issues 0.25% rate cut

As was expected, the Federal Reserved issued another rate cut today, following a previously announced one on September 18.

The Federal Reserve’s Federal Open Market Committee (FOMC) said it decided to lower the target range for the federal funds rate by 0.25% to 4.5%-to-4.75%.

This follows September’s 0.5% reduction, to 4.75%-to-5%, which marked the first time there had been a rate cut in four years, with the last one coming in 2020, during the pandemic.

“Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low,” stated the Federal Reserve. “Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

According to the Federal Reserve’s personal consumption expenditures (PCE) index, October’s inflation reading fell to 2.1%, the lowest since February 2021. This figure is significant, especially when compared to June 2022, when inflation peaked at 9.1%. This rise was influenced by pandemic-related factors, including supply chain issues, labor availability, and a shift in consumer spending from goods to services as the economy reopened. What’s more, the 2.1% inflation rate is well within reach of the Federal Reserve’s 2% target.

As previously reported, a recently-conducted Logistics Management reader survey of more than 100 freight transportation, logistics, and supply chain stakeholders found that 63% of respondents felt a rate cut would help, with 37% saying it would not.

Reasons cited for the former included: access to cheaper capital helping the sector and various businesses; reducing interest payments and improving cash flow; spurring housing sector growth; and improving consumer demand, among others. And reasons for the latter included: labor issues not subject to interest rates and deflation, among others.

LM columnist and supply chain consultant Brooks Bentz recently observed that he would not expect a major impact, at least immediately. 

“Clearly, lower interest rates may help spur investment, which is always beneficial in high-asset-based companies that require such investment in infrastructure and equipment, he noted. “I expect there will be something of a wait-and-see attitude in terms of what happens next, both with the Fed (will it take another swing at this?)…I don’t expect us seeing any major changes, at least for the balance of this year and probably into the first half of next.”