The Federal Reserve on Wednesday eased borrowing costs for the second time since the financial crisis and left the door open to future cuts as policymakers sought to insulate the longest economic expansion on record from increasing risks.
Following a closely watched policy meeting, the central bank lowered interest rates to a target range of 1.75% to 2%. The quarter-percentage-point adjustment was broadly in line with expectations but far from the “big,” aggressive stimulus that President Donald Trump has demanded.
The policy-setting Federal Open Market Committee signaled that the move was not the start of a downward cycle but said in a statement that it would “continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
The FOMC has become divided over how to weigh solid fundamentals against strains on the economy in recent months, with several dissenting from the policy decision on Wednesday. St. Louis Fed President James Bullard voted for a larger cut, while Kansas City Fed President Esther George and Boston Fed President Eric Rosengren voted to keep rates unchanged.
“Fed Chair Jerome Powell will have to steer a careful course between reassuring markets and recognizing an economy still exhibiting record low unemployment, fairly steady growth, and signs of a small but meaningful uptick in inflation,” said John Lynch, the chief investment strategist at LPL Financial.
An escalating trade dispute between the Trump administration and China has further muddled the outlook for policymakers. The effects of tariffs have grown increasingly evident in sectors like manufacturing, which contracted last month for the first time in three years.
The largest economies plan to extend tariffs to far more consumer products this December, putting businesses and households more directly at risk of being caught in the crossfire. That could disrupt some of the brightest spots in the US economy: hiring and consumer spending.
“For now, the US-China trade war shows no sign of slowing, and the Fed will want to cushion the impact of the latest round of import tariffs,” said Cailin Birch, a global economist at The Economist Intelligence Unit.
With an eye on his reelection campaign, Trump has pressured the Fed to take drastic steps to juice the economy since a recession warning flashed in August for the first time in more than a decade. Recent polls have suggested that Americans have become nervous about tariffs and would blame the president in the event of a downturn.
“Jay Powell and the Federal Reserve Fail Again,” Trump wrote on Twitter following the rate decision. “No ‘guts,’ no sense, no vision! A terrible communicator!”
The White House has called on the independent central bank to lower interest rates to zero or below, a move that would typically signal severe trouble in the economy and that could tie the hands of policymakers in the event of a recession. But it is likely to be disappointed — only seven of 17 Fed leaders penciled in another rate cut this year.
Earlier on Wednesday, the Fed had to jump into financial markets for a second time this week as the cash that banks keep on hand for short-term funding dried up. The shortage pushed up interest rates, prompting the central bank to pump $128 billion into the market.
“Our view is that the injections of cash are aimed to ensure the proper functioning of the financial system, rather than signaling a change in the Fed’s view of the economic outlook,” said Mark Haefele, the global chief investment officer at UBS Wealth Management.
Post time: Sep-19-2019