Fed cuts rates again, hints it will pause

Quarter percentage point a bid to stall possible recession

WASHINGTON – The Fed is in a groove, and that means more juice for the economy – at least for now.

For the third time in three months, the Federal Reserve lowered its key interest rate by a quarter percentage point, to a range of 1.5% to 1.75%, in a bid to head off a possible recession.

But the central bank signaled it may be done trimming rates, at least in the short term, modifying its previous vow to “act as appropriate to sustain the expansion.”

Instead, in a statement after a twoday meeting, the Fed said it “will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

That means another rate cut in December isn't likely unless the economy worsens, analysts have said. The Fed reiterated that “uncertainties” about its generally positive outlook remain, indicating the central bank still could act in response to a further slowdown.

“We see the current stance of monetary policy as likely to remain appropriate” as long as the economy and inflation are consistent with the Fed's outlook, Fed Chair Jerome Powell said at a news conference.

But he added that if developments emerge “that cause a material reassessment of our outlook, we would respond accordingly.”

Wednesday's rate decrease is expected to ripple through the economy, further pushing down borrowing costs for

ment, compounding the effects of a sluggish global economy that has hurt U. S. manufacturing. And the lift to the economy from federal tax cuts and spending increases spearheaded by President Trump increases is fading. Wells Fargo predicts the economy will grow 1.5% the second half of the year, down from about 2.5% the first half, and 1.7% in the first half of 2020.

Many economists still foresee an elevated risk of recession next year as Trump heads into a presidential election in November.

Consumer spending rises

Consumer spending grew a solid 2.9% in the third quarter, below the blistering 4.6% pace in the second quarter but more than expected. Consumers generally have shrugged off the trade standoff, which has started to increase retail prices.

Job growth has slowed but the unemployment rate dropped to a new 50year low of 3.5% in September and wages have been rising about 3% annually, putting more money in shoppers’ pockets. The stock market, while volatile, has notched record highs recently.

Consumption makes up about 70% of economic activity.

Business investment declines

Business investment fell 3% after dropping 1% in the second quarter. Outlays on structures fell 15.3%, partly because of a pullback in oil drilling amid lower prices, while spending on equipment dropped 3.8%.

The trade war has increased the price of many Chinese imports, including factory parts and retail products, squeezing manufacturers and retailers. The impasse, along with feeble growth overseas, also has curtailed U. S. exports. The trade battle also has generated uncertainty, prompting companies to hold off on new projects.

Residential investment bounces back

Construction of new single- family homes and apartments, along with renovations, rose 5.1%, breaking a streak of six consecutive quarterly declines. Average 30- year fixed mortgage rates have fallen to 3.75% from 4.86% a year ago, juicing home purchases and construction. That has helped offset a shortage of labor and available lots that have constrained builders.

Government outlays increase

Federal, state and local spending increased 2%, down from a 4.8% rise in the second quarter. Federal outlays rose 3.4% while state and local edged up 1.1%. The $ 300 billion in additional federal spending approved by Congress in early 2018 continued to boost the economy but the stimulus is expected to lose steam by late this year.

Trade is a drag on growth

U. S. exports rose 0.7%, following a 5.7% drop in the second quarter. Trump’s tariffs on $ 360 billion in Chinese imports have sparked counter- tariffs by China that have curtailed shipments of soybeans, vegetables and other products. Meanwhile, imports increased 1.2%.