By CHRISTOPHER RUGABER, AP Business Editor

WASHINGTON (AP) — The Federal Reserve on Thursday cut its key interest rate by a quarter point in response to the steady decline in once-high inflation that angered Americans and contributed to Donald Trump’s victory in the presidential election this week.

The rate cut follows a larger half-point cut in September and reflects the Fed’s renewed focus on supporting the labor market as well as combating inflation, which now barely exceeds the central bank’s 2% target.

Thursday’s decision brings the Fed’s key rate back to around 4.6%, down from a four-decade high of 5.3% before the September meeting. The Fed has kept its rate this high for more than a year to combat the worst inflation streak in four decades. Annual inflation has since fallen from a peak of 9.1% in mid-2022 to a 3-1/2-year low of 2.4% in September.

In a statement released after its latest meeting, the Fed said that “the unemployment rate has increased but remains low,” while inflation has moved closer to the central bank’s target but “remains somewhat high.

After their September rate cut – the first such rate cut in more than four years – Fed policymakers had planned to make further quarter-point cuts in November and December and four more next year . But with the economy now generally strong and Wall Street anticipating faster growth, larger budget deficits and higher inflation under a Trump presidency, further rate cuts may have become less likely.

THIS IS A LATEST UPDATE. Earlier AP story follows below.

WASHINGTON (AP) — Federal Reserve officials are set to cut their benchmark interest rate for a second straight time Thursday, in response to the steady slowdown in inflationary pressures that have infuriated many Americans and contributed to Donald Trump’s victory Trump in the presidential election.

Yet the Fed’s future decisions are now more uncertain in the wake of the election, given that Trump’s economic proposals have been widely reported as potentially inflationary. His election also raised the specter of White House interference in the Fed’s policy decisions, with Trump having proclaimed that as president he should have a say in the central bank’s decisions on matters interest rate.

The Fed has long defended its status as an independent institution, capable of making tough decisions about borrowing rates without political interference. Yet during his previous tenure in the White House, Trump publicly attacked Chairman Jerome Powell after the Fed raised rates to combat inflation, and he may do so again.

The economy also clouds the picture by sending mixed signals, with solid growth but slowing hiring. Even so, consumer spending has remained healthy, fueling concerns that the Fed may not need to cut borrowing costs and that doing so could overstimulate the economy and even reaccelerate inflation.

Financial markets are throwing a new curve at the Fed: Investors have pushed up Treasury yields sharply since the central bank cut rates in September. The result was higher borrowing costs across the economy, diminishing the benefit to consumers of the half-point cut in its benchmark rate announced by the Fed after its meeting. september.

The average 30-year mortgage rate in the United States, for example, fell over the summer when the Fed announced it would cut rates, only to rise again once the central bank actually lowered the rate. reference.

Broad interest rates have risen because investors anticipate higher inflation, larger federal budget deficits and faster economic growth under President-elect Trump. In what Wall Street called the “Trump trade,” stock prices also rose Wednesday and the value of bitcoin and the dollar jumped. Trump had talked about cryptocurrencies during his campaign, and the dollar would likely benefit from higher rates and the across-the-board tariff increase proposed by Trump.

Trump’s plan to impose tariffs of at least 10% on all imports, as well as significantly higher taxes on Chinese goods, and carry out a mass expulsion of undocumented immigrants, would almost certainly boost inflation. This would make it less likely that the Fed will continue to cut its key rate. Annual inflation, as measured by the central bank’s preferred gauge, fell to 2.1% in September.

Economists at Goldman Sachs estimate that Trump’s proposed 10% tariff, as well as his proposed taxes on Chinese imports and on automobiles from Mexico, could raise inflation to between 2.75% and 3% d by mid-2026.

Such an increase would likely upend future rate cuts announced by the Fed in September. At that meeting, when policymakers lowered their benchmark rate by a whopping half-point, to about 4.9 percent, officials said they were considering two quarter-point rate cuts later in the year. year – one Thursday and another in December – then four more. rate cuts in 2025.

But investors now believe a rate cut next year is increasingly unlikely. The perceived likelihood of a rate cut at next year’s January Fed meeting fell to just 28% on Wednesday, down from 41% on Tuesday and almost 70% a month ago, according to prices at term monitored by CME FedWatch.

Rising borrowing costs for things like mortgages and auto loans, even as the Fed cuts its benchmark rate, pose a potential challenge to the central bank’s efforts to support the economy by lowering borrowing costs. Borrowing may not pay off if investors act to increase long-term borrowing rates.

The economy has seen solid annual growth of just under 3% over the past six months, while consumer spending – fueled by higher-income shoppers – rose sharply in the July-September quarter.

At the same time, businesses have slowed hiring, and many unemployed people are struggling to find work. Powell suggested the Fed was cutting its key rate in part to support the labor market. But if economic growth continues at a brisk pace and inflation rises again, the central bank will come under increasing pressure to slow or stop its interest rate cuts.