Texarkana Gazette

With Trump trade war a threat, Fed is set to cut interest rates again

- By Martin Crutsinger

WASHINGTON — For a second straight time, the Federal Reserve is set to cut interest rates this week to try to protect the economy from the consequenc­es of a global slowdown and President Donald Trump’s trade war with China.

After that, no one — not even the Fed itself — seems sure what it will do. The economic landscape looks too hazy and vulnerable to unexpected events, like oil price spikes resulting from the weekend attack on Saudi Arabia’s oil production facilities.

Among the key questions: Will Trump achieve at least a truce in his conflict with China and diminish a threat overhangin­g the U.S. economy?

Will Britain avoid a disruptive exit from the European Union that would destabiliz­e the global economy?

Is U.S. inflation, dormant for years, finally starting to reach the level the Fed has long targeted? Could a surge in oil prices even send inflation to heights that would make the Fed uncomforta­ble about cutting rates? Or would higher energy prices make the officials more fearful of a global downturn and so more inclined to cut rates?

The answers to those uncertaint­ies will influence the Fed’s decisions in the coming months on whether it needs to keep reducing borrowing rates to try to help sustain the U.S. economic expansion now in its 11th year.

It might not matter much in any case. With rates already ultra-low, few economists think a further modest drop in borrowing costs would provide much economic stimulus. Still, the financial markets are anticipati­ng not only a quarter-point rate cut on Wednesday when the Fed ends its latest policy meeting but one or more additional cuts later this year.

Since the Fed’s last meeting ended July 31, the markets have endured a tumultuous ride. On that day, it announced its first rate cut in more than a decade — since the eruption of the financial crisis in 2008. In explaining its move to cut its key short-term rate to a range of 2% to 2.25%, the Fed cited the weakening internatio­nal economy, uncertaint­ies heightened by Trump’s trade fights and chronicall­y low inflation. It cast its action as a pre-emptive move to sustain the expansion.

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