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  HOME | Business & Economy (Click here for more)

Fed Cuts Interest Rates by a Quarter Point

WASHINGTON – The United States Federal Reserve voted on Wednesday to lower its benchmark interest rate to a target range of between 1.75 percent and 2 percent, a quarter-point cut that comes amid growing concerns about the impact of the US-China trade war on the global economy.

The Fed had also cut the federal-funds rate by a quarter point in late July, which was the first rate reduction since the financial crisis in late 2008.

But the decision by the Federal Open Market Committee, the Fed’s policy-making body, revealed the internal divisions among US central bankers.

Seven FOMC members voted in favor of the monetary policy action, while two wanted to keep rates unchanged and one preferred a steeper half-point cut.

The central bank said in a press release that “the labor market remains strong and ... economic activity has been rising at a moderate rate,” but it justified its move due to “the implications of global developments for the economic outlook as well as muted inflation pressures.”

“Strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes,” said the FOMC, which will next meet in late October.

Separately, the Fed raised its US growth forecast for this year to 2.2 percent, up from 2.1 percent in June. It left its forecast for 2020 growth unchanged at 2 percent.

However, the Fed now expects the unemployment rate to come in at 3.7 percent at year’s end, up from 3.6 percent in its June forecast. Its forecast for the jobless rate in 2020 was unchanged at 3.7 percent.

The central bank’s projection for consumer prices was unaltered from June, with the Fed still expecting the headline inflation rate to come in at 1.5 percent this year and 1.9 percent (near the Fed’s 2 percent objective) in 2020.

In his post-meeting press conference, Fed Chairman Jerome Powell said a “more extensive sequence of rate cuts will be appropriate” in the event of an economic downturn.

“We don’t see that. It’s not what we expect,” he added.

Despite the second consecutive interest rate cut, US President Donald Trump slammed the Fed for what he views as an overly cautious approach.

“Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!” the president tweeted.

Trump, who is seeking higher US economic growth ahead of his re-election bid next year, tweeted last week that the Fed should cut rates down to zero or less.

“And we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet.”

 

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