The Federal Reserve issued its third straight interest rate cut Wednesday, bringing the target rate to between 3.5 and 3.75 percent.
The rate cut of 25 basis points was announced after the conclusion of the Federal Open Market Committee meeting and brought rates to their lowest point since late 2022.
“Conditions in the labor market appear to be gradually cooling, and inflation remains somewhat elevated,” said Federal Reserve Chairman Jerome Powell. “In support of our goals in light of the balance of risk to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point.”
The Fed has now cut rates 75 basis points since September and 175 basis points since September 2024.
Powell indicated that the cooling labor market played a large role in the decision by a majority of the committee to cut rates. Unemployment is reported at 4.4 percent, and job creation has slowed, averaging 40,000 since April. Powell added that he and the board believe the job creation could be smaller or there could even be a contraction of jobs.
“In a world where job creation is negative, I think we need to watch that situation very carefully, and be in a position where we are not pushing down on job creation with our policy,” Powell said.
Inflation remains above the 2 percent target at 2.8 percent. Powell said tariffs have led to inflation remaining higher.
“These readings are higher than earlier in the year, as inflation for goods has picked up, reflecting the effects of tariffs,” Powell said.
In its projection for 2026, the FOMC expects only modest cuts, with a majority seeing a drop to 3.4 percent. The majority don’t see rates falling closer to 3 percent until the end of 2027.
While the federal rates have decreased, automotive rates remain elevated. The latest Cox Automotive Dealertrack estimates show used auto loan rates are 14.26 percent and new vehicle rates are 9.52 percent.
