FEDERAL RESERVE RATE CUT (USA) BY 25 BPS--SBI PO INTERVIEW
A divided Fed reduces rates but may not cut again
this year
WASHINGTON — 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
control.
"This is a time of difficult judgments and disparate
perspectives," the chairman said.
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 signalled 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.
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