Divided Fed cuts rate a 2nd time this year
Trump slams Powell, calls central bank’s reduction a failure
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 shortterm 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. It was the most Fed dissent in three years.
The divisions on the policy committee underscored the challenges confronting Chairman Jerome Powell in guiding the Fed at time of high uncertainty in the U.S. economy.
Stock prices fell after the Fed issued its policy statement, reflecting investor disappointment that the central bank had declined to indicate that more rate cuts were likely this year. But the Dow Jones Industrial Average rebounded to close up 36 points, or 0.13%, to 27,147.
The Fed did leave the door open to additional rate cuts — if, as Powell suggested at a news conference, the economy weakens
For now, the economic expansion appears durable in its 11th year of growth, with a still-solid job market and steady consumer spending. But 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.
At his news conference, Powell acknowledged that Fed officials are divided about the wisest course to take on interest rates.
“This is a time of difficult judgments and disparate perspectives,” the chairman said. “I really do think that is nothing but healthy.”
The Fed’s modest rate cut irritated Trump, who has attacked the central bank and insisted that it slash rates more aggressively.
The president signaled his discontent: “Jay Powell and the Federal Reserve Fail Again,” Trump tweeted. “No ‘guts,’ no sense, no vision! A terrible communicator!”
Updated economic and interest rate forecasts issued Wednesday by the Fed show that 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 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 be reaching the Fed’s target level and that there are increasing signs that the U.S. economy remains sturdy.
The job market looks solid, wages are rising, consumers are still spending and even such sluggish sectors have shown signs of rebounding.
Yet no one is sure of how interest rate policy will unfold in coming months. Too many uncertainties exist, notably the outcome of Trump’s trade war.
The Fed is monitoring the global slowdown, and Britain’s effort to leave the European Union. A disruptive Brexit could destabilize the European and U.S. economies.