Central bank approves quarter-point rate cut in line with economists expectations as Trump tweets: Jay Powell and the Federal Reserve fail again!
Under pressure from Wall Street and the White House, the Federal Reserve lowered interest rates on Wednesday for a second straight meeting, but declined to signal if it would continue to drop rates in the future.
Citing the global economic outlook and muted inflationary pressures at home, the central bank decided to lower interest rates a quarter of a point to meet a target borrowing rate of 1.75% to 2%.
The cut was in line with the expectations of investors and economists, but the board showed it was not willing to schedule further cuts.
The decision showed Fed officials are split over where to set interest rates. Seven of 10 officials voted in favor of the cut, two opposed it and one argued for a larger half-point cut.
The board said: This action supports the committees view that sustained expansion of economic activity, strong labor market conditions, and inflation near the committees symmetric 2% objective are the most likely outcomes, but uncertainties about this outlook remain.
The analytical firm Capital Economics noted the Fed was split over rates and said its economic projections were unchanged since July.
The breakdown of the split suggests most Fed officials still see a rebound in economic growth as their base-case scenario, which means any further rate cuts would be limited, it wrote in a note to investors.
Financial markets largely welcomed the news as a buffer against risks from a global slowdown and uncertainty over Donald Trumps trade policies.
But some analysts warned the cut could do more harm than good.
Kerstin Braun of the Stenn Group said: Real capital growth and real economic activity are driven by long-term interest rates, which are functions of expected future inflation and investor confidence.
With rates head toward zero, Braun added, banks have no incentive to loan money, making credit actually tighter for companies that want to grow.
The cut was immediately criticized by Trump, who last week said the Feds boneheads should reduce rates to zero or lower. Trump is counting on a strong economy fueled by cheap money to boost his reelection chances next year.
Jay Powell and the Federal Reserve Fail Again. No guts, no sense, no vision! A terrible communicator! Trump said in a tweet following the announcement.
At his news conference in July, Powell surprised markets by calling the rate cut then a mid-cycle adjustment. In comments on Wednesday Powell said the economic outlook was broadly favorable but warned that a sequence of rate cuts could be needed if economy turns.
he analytical firm Capital Economics noted that the Fed is still split over rates and its economic projections unchanged since July.
That, it wrote in a note to investors, suggests most Fed officials still see a rebound in economic growth as their base case scenario, which means any further rate cuts would be limited.
But some analysts warned the cut could do more harm than good.
Real capital growth and real economic activity are driven by long-term interest rates, which are functions of expected future inflation and investor confidence, said Dr Kerstin Braun, President of Stenn Group, an international provider of trade finance.
Thats why a cut in short-term rates is unlikely to fuel business investment and manufacturing. Uncertainty around the global economy and the impact of the trade war has killed any appetite to invest.
With rates head toward zeo, Braun added, banks have no incentive to loan money, making credit actually tighter for companies that want to grow.
Read more: https://www.theguardian.com/business/2019/sep/18/federal-reserve-interest-rates-trump-jerome-powell
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