Fed approves quarter-point rate cut but is divided on further action this year
- The central bank announces it’s taking down its benchmark overnight lending rate to a target range of 1.75% to 2%.
- According to the Fed’s “dot plot” of individual expectations, five members thought the FOMC should have held its previous range of 2% to 2.25%, five approved of the 25 basis point cut but keeping rates there through the rest of the year, and seven favored at least one more cut this year.
- The committee again cites “the implications of global developments for the economic outlook as well as muted inflation pressures” as the primary rationale for Wednesday’s cut.
The Federal Reserve approved a much-anticipated quarter-point interest rate cut Wednesday but offered few indications that further reductions are ahead as members split on what to do next.
Following its two-day policy meeting, the central bank announced that it would take down its benchmark overnight lending rate to a target range of 1.75% to 2%. That comes nearly two months after the policymaking Federal Open Market Committee went ahead with its first cut in 11 years.
Major U.S. stock exchanges dropped after the decision was announced.
In addition to the reduction, the Fed cut the interest it pays on excess reserves by 30 basis points, greater than the funds rate cut, amid a breakdown this week in the overnight repurchase lending market. The move was aimed at keeping the funds rate within its target range; the interest on excessive reserves (IOER) historically has acted as a guardrail for the funds rate, which traded 5 basis points above the target.
WASHINGTON—The Federal Reserve voted to cut interest rates by a quarter-percentage point for the second time in as many months to cushion the economy against a global slowdown amplified by the U.S.-China trade conflict.
While the central bankers left the door open to additional cuts, they were split over Wednesday’s decision and the outlook for further reductions.
Seven of 10 officials voted in favor lowering the short-term benchmark to a range between 1.75% and 2%. As in July, two reserve bank presidents dissented from the decision in favor of holding rates steady. Fed Chairman Jerome Powell also faced a third dissent from a bank president who preferred a larger, half-point cut.
“We took this step to keep the economy strong,” said Mr. Powell in a news conference after the decision.
He also held open the door to further rate cuts if the economy weakened further, even though he said officials still have a positive outlook for the U.S. economy.
Fed ups its GDP forecast for 2019 slightly to 2.2%
- The central bank now expects the GDP to grow at a 2.2% pace for 2019, versus the 2.1% forecast in June.
- The unemployment rate is expected to rise to 3.7% this year, slightly above the 3.6% projection in June.
The Federal Reserve dialed up its growth expectations slightly while keeping its inflation projection unchanged, according to its Summary of Economic Projections.
Source: Federal Reserve
The central bank now expects GDP to grow at a 2.2% pace for 2019, versus the 2.1% forecast in June. The unemployment rate is expected to rise to 3.7% this year, slightly above the 3.6% projection in June.
The GDP outlook for 2020 stayed unchanged at 2%.
A divided Federal Reserve lowered interest rates a quarter point on Wednesday but didn’t clearly signal that another cut was in store, immediately drawing a sharp denunciation from President Donald Trump.
Fed officials didn’t forecast another rate reduction this year, though they didn’t rule out the option completely. That prompted Trump — who has called on the central bank to slash rates to zero or below — to blast the Fed and its chairman, Jerome Powell.
“Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision! A terrible communicator!” Trump tweeted within minutes of the Fed’s move.
The Fed’s move on Wednesday to cut rates by a quarter point is intended to reassure markets, companies and households amid signs that growth is slowing from its 2018 pace, though the central bank continues to expect the economy to expand over the next few years.