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In a move that has a few people scratching their heads, the Federal Reserve announced on Wednesday its decision to cut interest rates by a quarter point to around 2.25 percent. Several economists and investors think the move lacks justification thanks to a strong economy, The Washington Post's Heather Long writes. Instead, they reportedly see the Fed as caving to President Trump, who has been pressuring Fed Chair Jerome Powell to make large cuts for months.
"I have to conclude that the Fed has lost some independence here," Blu Putnam, chief economist at CME Group told the Post.
The last time the Fed cut rates was in 2008 when unemployment was over 7 percent, the stock market had lost a third of its value, and Lehman Brothers had declared bankruptcy. The economy needed a stimulus back then. In contrast, the current unemployment rate is at a healthy 3.7 percent, the economy is growing steadily if not overwhelmingly, and the stock market is hitting record highs.
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But Powell said in a press conference that the Fed was not acting on pressure from the White House. "We also don't conduct monetary policy in order to preserve our independence," he said. Instead, Powell said the decision — which was not made unanimously — was about fulfilling goals of maximum employment and price stability. Slow foreign growth, a decline in business investment, and trade policy tensions are among the reasons why Powell and his colleagues felt that those goals could be at risk going forward, despite the strong economic situation.
Realistically, the Post reports, one cut won't do much, but Powell isn't ruling out more. He did say, however, instituting a cycle of cuts "is not our perspective right now." Read more at The Wall Street Journal and The Washington Post.
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