Sun Sentinel Palm Beach Edition
Fed cuts key rate for first time since 2008
Trump lashes out against Powell after quarter-point drop
WASHINGTON — The Federal Reserve cut its key interest rate Wednesday for the first time in a decade to try to counter threats ranging from uncertainties caused by President Donald Trump’s trade wars to chronically low inflation and a dim global outlook.
Stocks tumbled soon after the Fed issued its statement at 2 p.m. Eastern time. The Dow Jones Industrial Average, which had been nearly flat before the announcement, sank about 300 points an hour later just as Chairman Jerome Powell was holding a news conference. Investors seemed disappointed that Powell said the Fed doesn’t envision a long series of rate cuts to follow Wednesday’s.
But later in his news conference, he seemed to shift his message to leave open the possibility that the Fed would cut rates again.
The Dow closed down 334 points.
The central bank reduced its bench mark rate, which affects many loans for households and businesses, by a quarter point to a range of 2% to 2.25%. It’s the first rate cut since December 2008 during the depths of the Great Recession, when the Fed slashed its rate to a record low near zero and kept it there until 2015. The economy is far healthier now despite risks to what’s become the longest expansion on record.
In addition to its rate cut, the Fed also said it would stop shrinking its bond portfolio in August, two months earlier than planned.
This step is intended to avoid putting upward pressure on long-term borrowing rates. The Fed had aggressively bought Treasury and mortgage bonds after the financial crisis to drive down long-term rates but had been gradually shrinking its balance sheet as the economy strengthened.
President Donald Trump, who has repeatedly attacked the Federal Reserve for failing to cut rates aggressively, expressed irritation with the Fed’s message Wednesday.
“What the market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, the European Union and other countries around the world,” Trump tweeted.
“As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place — no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!”
The Fed’s action Wednesday was approved 8-2 vote, with two dissents: Esther George, president of the Fed’s Kansas City regional bank, and Eric Rosengren, head of the Boston Fed, wanted to keep rates unchanged.
It was the first time there have been as many as two dissents since December 2017 and suggested that Powell may face opposition if he seeks further rate cuts this year.
Compared with when the Fed previously cut rates more than a decade ago, the economy is now solid by most measures. Consumers are spending. Unemployment is close to a half-century low. A recession hardly seems imminent.
Yet the Fed under Powell has signaled that rising economic pressures, notably from Trump’s trade wars and from weakness in Europe, Asia and elsewhere, have become cause for concern. So has an inflation rate that remains stubbornly below the Fed’s 2 percent target level.
So the Fed has decided that a rate cut now could provide a kind of insurance policy against an economic downturn. The idea is that lowering its key short-term rate could encourage borrowing and spending and energize growth.
A key concern expressed by the Powell Fed is that Trump’s pursuit of trade conflicts, with his punishing tariffs on hundreds of billions of dollars in Chinese and European goods, have escalated uncertainties for American companies. Some companies have put off plans to expand and invest.