Fed cuts rates for a 3rd time but signals it will now pause
WASHINGTON >> The Federal Reserve cut its benchmark interest rate Wednesday for the third time this year to try to sustain the economic expansion in the face of global threats. But it indicated that it won’t cut again in the coming months unless the economic outlook worsens.
The Fed’s move reduces the short-term rate it controls — which influences many consumer and business loans — to a range between 1.5% and 1.75%.
A statement the Fed released after its latest policy meeting removed a key phrase that it has used since June to indicate a future rate cut is likely. And at a news conference, Chairman Jerome Powell suggested that the Fed will now pause unless the economic picture darkens.
“If developments emerge that would cause a material reset of our outlook,” Powell said, “we will respond appropriately.”
The phrase the Fed dropped Wednesday from its policy statement had said it would “act as appropriate to sustain the expansion.” This was its signal that it expected to continue easing credit to aid the economy. In its new statement, the Fed said instead that it will review the latest economic data as “it assesses the appropriate path” for its benchmark interest rate.
The statement otherwise made few changes to the Fed’s description of the economy, which it said was rising at “a moderate rate.” It noted that job gains have been solid and pointed to strength in consumer spending. But it also pointed out that business investment and exports “remain weak.”
Two of the Fed’s policymakers dissented from the decision: Boston Fed President Eric Rosengren and Kansas City Fed President Esther George said they preferred to leave rates alone. Both have dissented from all three rate cuts this year.
The economy is in its 11th year of expansion, fueled by consumer spending and a solid if slightly weakened job market. By cutting rates, the Fed has tried to counter uncertainties heightened by President Donald Trump’s trade conflicts, a weaker global economy and a decline in U.S. manufacturing.
The third rate cut of the year has partly reversed the four hikes that the Fed made last year in response to a strengthening economy. That was before rising global risks led the Fed to change course and begin easing credit. Lower rates are intended to encourage more borrowing and spending.
Powell has said that the central bank’s rate reductions were intended as a kind of insurance against threats to the economy. Powell has pointed to similar rate cuts in 1995 and 1998 as precedents; in both those cases, the Fed cut rates three times. He and most other Fed officials credit their rate cuts with lowering mortgage rates, boosting home sales and generally keeping the economy on track.
The Fed is also weighing the consequences of a decline in expectations for inflation. Lower inflation expectations can be self-fulfilling. This can pose a problem for the Fed because its preferred inflation gauge has been stuck below its 2% target for most of the past seven years.