Fed rate cut a mid-cycle adjustment, Powell says
WASHINGTON The Federal Reserve reduced interest rates for the first time since the financial crisis in a move that Chairman Jerome Powell said was designed to “insure against downside risks” rather than signal the start of a lengthy cycle of monetary policy easing.
“We’re thinking of it as essentially in the nature of a mid-cycle adjustment to policy,” he told a press conference Wednesday following the decision. “It’s not the beginning of a long series of rate cuts,” he said, adding: “I didn’t say it’s just one.”
Central bankers voted, with two officials dissenting, to lower the target range for the benchmark rate by a quarter-percentage point to 2 per cent-2.25 per cent. The shift was predicted by most investors and economists, yet will disappoint President Donald Trump, who tweeted on Tuesday he wanted a “large cut.”
“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the committee decided to lower” rates, the Federal Open Market Committee, said in a statement following the two-day meeting in Washington. It also noted that “uncertainties” about the economic outlook remain, leaving the door open to further easing.
U.S. equities fell the most in two months, while two-year Treasury yields rose as Powell dented hopes about continued easing.
In New York, the Dow Jones industrial average was down 333.75 points at 26,864.27. The S&P 500 index was down 32.80 points at 2,980.38, while the Nasdaq composite was down 98.19 points at 8,175.42.
The S&P/TSX composite index was down 59.49 points at 16,406.56.
Officials also stopped shrinking the Fed’s balance sheet effective Aug. 1, ending a process that very modestly tightens monetary policy and was previously scheduled to come to a close at the end of September.