US Federal Reserve announces another interest rate cut
Fed Chair Jerome Powell signals that further cuts are unlikely
The US central bank, the Federal Reserve, announced yesterday that it is cutting US interest rates by 25 basis points for the third time this year, but signalled that the easing of monetary policy would likely be put on hold imminently.
Jerome Powell, the Fed chair, said that the rate cut was in response to a global economy that continues to face perils. However, he added that the potential of a “phase one” US-China trade deal, as well as the reduced risk of a no-deal Brexit, had reinforced thinking that continued monetary easing may not be necessary.
“We believe that monetary policy is in a good place,” Powell said. “We took this step to help keep the economy strong in the face of global developments and to provide some insurance against ongoing risks,” he said.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
The Fed, he said, would cut its key overnight lending rate by a quarter of a percentage point, to a target range of 1.50% to 1.75%.
“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook,” said Powell.
Markets focused on an official statement accompanying Powell’s news conference, in which a crucial phrase, which dropped the assertion that it would “act as appropriate to sustain the expansion” - a line that is taken to imply continued rate cuts. Instead, it said it would “assess the appropriate path” for rates, indicating that investors believed the Fed would pause easing for now.
“It’s pretty much what was expected,” said Jim Powers, director of investment research at Delegate Advisors. “The more important outcome is they removed the phrase ‘act as appropriate.’ It looks like the market is taking that to mean that there will be a pause in the declining rate path they were on beforehand. That’s what was expected, and that’s generally a good thing.”
Ron Temple, head of US equities at Lazard Asset Management, said: “The Fed telegraphed today that rate cuts are over for now, and markets seem to agree.”
–––––––––––––––––––––––––––––––For a round-up of the most important business stories and tips for the week’s best shares - try The Week magazine. Get your first six issues free–––––––––––––––––––––––––––––––
Consistent rate cuts of this nature are rare in times of economic growth, and the US is enjoying historically low unemployment, solid wage growth and suitable household purchases.
“The Fed chairman has been under pressure all year by Trump to continue juicing the economy by sharply cutting interest rates, which are already at historically low levels, as he seeks to bolster his chances of winning next year's election in 2020,” reports CNN Business. The news of a third successive cut will go down well with the president, but implications that Powell will now pause may put them on a collision course.
By cutting now the central bank is reducing its toolkit of measures should the economy slow, and there are signs that a potential slowdown may already be happening. Data released on Wednesday by the Commerce Department revealed that the US economy’s growth rate has continued to slow.
This has led some to conclude, despite investors’ analysis of Powell’s statement yesterday, that further rate cuts are likely. “On balance, we still anticipate that a further deterioration in the incoming activity data will persuade the Fed to change tack and cut interest rates one final time in December,” said Paul Ashworth, the chief US economist at Capital Economics.
Addressing concerns that continued rate cuts could bring inflation to unacceptable levels, Powell argued the threat was unlikely. “I think we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation,” he said.
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
The pros and cons of globalization
Pros and Cons Globalization can promote economic prosperity but also be exploitative
By Justin Klawans, The Week US Published
-
Magazine solutions - October 11, 2024
Puzzles and Quizzes Issue - October 11, 2024
By The Week US Published
-
Magazine printables - October 11, 2024
Puzzles and Quizzes Issue - October 11, 2024
By The Week US Published
-
Fed cuts rates half a point, hinting victory on inflation
Speed Read This is the Fed's first cut in two years
By Peter Weber, The Week US Published
-
US job growth revised downward
Speed Read The US economy added 818,000 fewer jobs than first reported
By Peter Weber, The Week US Published
-
US inflation drops below 3%, teeing up rate cuts
Speed Read This solidifies expectations that the Federal Reserve will finally cut interest rates in September
By Peter Weber, The Week US Published
-
Is the Fed ready to start cutting interest rates?
Today's Big Question Recession fears and a presidential election affect the calculation
By Joel Mathis, The Week US Published
-
Why are global stock markets plunging?
Today's Big Question Europe, Asia and Wall Street have all suffered big falls after US economy data spooked investors
By Rebekah Evans, The Week UK Published
-
Will the housing slump ever end?
Today's Big Question Probably not until mortgage rates come down
By Joel Mathis, The Week US Published
-
Are we getting a 'hard landing' after all?
Today's Big Question Signs of economic slowdown raise concerns 'soft landing' declarations were premature
By Joel Mathis, The Week US Published
-
Holiday season: Fed optimism cheers investors
Feature The feds believe their 'pivot' will make a recession unlikely
By The Week US Published