Fed Begins Debate on Whether to Cut Rate as Soon as June
A summary
Federal Reserve officials are beginning preparations for a June policy meeting with difficult choices to deliberate.
One month ago, Fed Chairman Jerome Powell played down speculation of a rate cut this summer.
Now officials face a darker economic outlook, making a rate cut possible-if not at their meeting on June 18-19, then possibly in July or later.
The Fed is set to begin their customary pre-meeting quiet period at the end of this week.
Traders in futures markets have placed about a 25% chance of a rate cut at theJune 18-19 meeting, and a 75% chance of at least one cut by the meeting after hat, on July 30-31, according to CME Group.
Instead, Fed officials, who gathered at the Federal Reserve Bank of Chicago this week for a research conference, signaled in broadcast interviews and speeches that they are attentive to the risks of a sharper-than-expected slowdown ingrowth, a sign that an interest-rate cut could be on the table at coming meetings.
“We are closely monitoring the implications of these developments for the U.S.economic outlook and, as always, will act as appropriate to sustain the expansion.” Fed Vice Chairman Richard Clarida and Governor Lael Brainard made similar statements in recent days without indicating when any action might be needed.
Just two weeks ago, Fed leaders indicated they didn’t see a strong reason to move rates up or down.
New York Fed President John Williams, a top ally of Mr. Powell, is set to speakThursday afternoon in New York.
On May 5, just days after the Fed concluded its most recent policy meeting, President Trump announced he would increase tariffs on China.
Fed officials face the following tension: On one hand, they don’t want to react prematurely to events that could quickly change.
In recent weeks, some Fed officials have approvingly cited examples from 1995and 1998 in which the central bank took out “Insurance” against looming economic weakness by cutting rates, extending the economic expansion.
Fed officials preparing for the June 18-19 meeting will be closely watching the freshest economic data and the state of trade talks.
Markets didn’t think the Fed was acknowledging the risks to the outlook and tumbled in the weeks after the meeting, leading Mr. Powell to signal a pause in early January.
Next FOMC Meeting June 18-19, Etc.
AC