Divided Fed Cuts Rates Again 09/19 06:03
A sharply divided Federal Reserve cut its benchmark interest rate Wednesday
for a second time this year but declined to signal that further rate cuts are
likely this year.
WASHINGTON (AP) -- A sharply divided Federal Reserve cut its benchmark
interest rate Wednesday for a second time this year but declined to signal that
further rate cuts are likely this year.
The Fed's move reduced its key short-term rate --- which influences many
consumer and business loans --- by an additional quarter-point to a range of
1.75% to 2%.
The action was approved 7-3, with two officials preferring to keep rates
unchanged and one arguing for a bigger half-point cut. The divisions on the
policy committee underscored the challenges for Chairman Jerome Powell in
guiding the Fed at a time of high economic uncertainty.
The Fed did leave the door open to additional rate cuts --- if, as Powell
suggested at a news conference, the economy weakens. For now, he suggested, the
economic expansion appears durable in its 11th year, with a still-solid job
market and steady consumer spending.
At the same time, the Fed is trying to combat threats including
uncertainties caused by President Donald Trump's trade war with China, slower
global growth and a slump in American manufacturing. The Fed noted in its
statement that business investment and exports have weakened.
Financial markets closed mostly higher after the Fed's afternoon
announcement although the diverging opinions on the Fed left some investors
uncertain how many more rate cuts the Fed will deliver. The Dow Jones
Industrial Average after being down most of the day finished up 36.28 points,
or 0.1%, to 27,147.08.
At his news conference, Powell acknowledged that Fed officials are sharply
divided about the wisest course for interest rates, especially given
uncertainties, like trade conflicts, whose outcomes are out of the Fed's
"This is a time of difficult judgments and disparate perspectives," the
In any case, many business leaders are skeptical that the Fed's slight rate
cuts will deliver much economic benefit.
Wednesday's rate cut "makes virtually no difference to the U.S. economy in
and of itself," said Jamie Dimon, CEO of JPMorgan Chase, who suggested, as many
corporate leaders have, that Trump's trade war remains an overarching threat.
"I don't think cutting rates will offset trade, personally," said Dimon,
head of the largest U.S. bank.
Among Powell's challenges is that the trade war's uncertainties are likely
affecting the nation's economic data, making it hard for the Fed to set an
interest-rate policy for the months ahead.
"It doesn't make sense to commit to a path of policy today when monetary
policy is now responding to future developments in the trade policy," said Bill
Adams, a senior economist at PNC Financial Services.
Wednesday's modest rate cut irritated Trump, who has attacked the central
bank and insisted that it slash rates more aggressively. The president
immediately signaled his discontent:
"Jay Powell and the Federal Reserve Fail Again," Trump tweeted. "No 'guts,'
no sense, no vision! A terrible communicator!"
Asked about Trump's latest personal taunt, Powell declined, as he has
before, to respond directly, while adding that the Fed's long-standing
independence from political pressures "has served the public well."
Updated economic and interest rate forecasts issued Wednesday by the Fed
show that only seven of 17 officials foresee at least one additional rate cut
this year. And at least two Fed officials expect a rate hike next year.
None of the policymakers foresee rates falling below 1.5% in 2020 --- a sign
that the turbulence from a global slowdown and Trump's escalation of the trade
war is viewed as manageable.
The median forecasts show the economy is expected to grow a modest 2.2% this
year, 2% next year and 1.9% in 2021. Those forecasts are well below the Trump
administration's projection that the president's policies will accelerate
growth to 3% annually or better. But they also suggest that policymakers do not
envision a recession.
Unemployment is projected to be 3.7% and inflation 1.5%, below the Fed's
target level of 2%
A resumption of trade talks between the Trump administration and Beijing and
a less antagonistic tone between the two sides have supported the view that
additional rate cuts might not be necessary. So has a belief that oil prices
will remain elevated, that inflation might finally be reaching the Fed's target
level and that there are increasing signs that the U.S. economy remains sturdy.
The job market looks solid, wages are rising, consumers are still spending
and even such sluggish sectors as manufacturing and construction have shown
signs of rebounding.
Yet no one, perhaps not even the Fed, is sure of how interest rate policy
will unfold in coming months. Too many uncertainties exist, notably the outcome
of Trump's trade war.
Trump has meantime kept up a stream of public attacks on the central bank's
policymaking, including referring to Powell as an "enemy" and the Fed's
policymakers as "boneheads." Even though the economy looks resilient, the
president has insisted that the Fed slash its benchmark rate more deeply ---
even to below zero, as the European Central Bank has done --- part to weaken
the U.S. dollar and make American exports more competitive.
The Fed is monitoring the global slowdown, especially in Europe, and
Britain's effort to leave the European Union. A disruptive Brexit could
destabilize not just Europe but the U.S. economy, too
U.S. inflation, which has long been dormant, has begun to show signs that it
is reaching the Fed's 2 percent target and might remain there. If the Fed's
policymakers conclude that inflation will sustain a faster pace, it might give
them pause about cutting rates much further.
The most serious threat to the expansion is widely seen as Trump's trade
war. The increased import taxes he has imposed on goods from China and Europe
--- and the counter-tariffs other nations have applied to U.S. exports --- have
hurt many American companies and paralyzed their plans for investment and
In recent days, the Trump administration and Beijing have acted to
de-escalate tensions before a new round of trade talks planned for October in
Washington. Yet most analysts foresee no significant agreement emerging this
fall in the conflict.