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 inflation 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

credit cards, home equity lines of credit and adjustable-rate mortgages but also pinching seniors and others who were finally benefiting from higher savings account yields.

Stocks advanced in the wake of the Fed’s policy decision. The Dow Jones Industrial Average rose about 70 points to 27,148, around 3 p.m. ET on Wednesday. The S&P 500 index was virtually flat. Meanwhile, the yield on the 10-year Treasury was stable at 1.8%.

Fed officials have been starkly divided over the flurry of rate cuts, with many supporting them and others preferring more tempered moves or none at all. Wednesday’s decrease was viewed as a milestone because the three reductions since July now equal the three moves the Fed made in both 1995-96 and 1998.

As during those periods, Fed policymakers have said the economy is performing well and they’re acting to effectively take out insurance against the risk of a downturn. Fed Chair Jerome Powell has called the cuts a “mid-cycle adjustment” rather than a more aggressive effort to lift the economy from a downturn.

Economists, in turn, have been split over whether the central bank on Wednesday would leave the door open to another rate decrease in December or hint that it’s pausing to see how the economy responds to the moves so far.

On the one hand, the economic picture has brightened somewhat in recent weeks. The U.S. and China tentatively reached a truce in their trade war that would suspend additional tariffs. The risk of a “hard Brexit” that leaves Britain without a trade deal with Europe has ebbed. And long-term Treasury rates have edged back above short-term Treasury yields, reversing an “inverted yield curve” that reflected a dim outlook.

Those developments provide ammunition for the Fed’s apparent inclination to take a breather the rest of the year. Fed funds futures markets reckon the odds of another rate cut in December are just 27%.

“We also see the risks to the outlook as moving in a positive direction,” Powell said, citing the developments with the trade war and Brexit.

At the same time, the global economy remains sluggish and existing tariffs by both the U.S. and China are expected to curtail economic growth both through reduced trade and weaker business confidence and investment. Manufacturing, in turn, has been contracting. And while consumer spending remains solid, it has slowed in recent months.

Also, a measure of inflation that strips out volatile food and energy items has picked up recently but remains below the Fed’s 2% annual target, giving the Fed more leeway to trim rates.

President Donald Trump has repeatedly badgered Powell and the Fed on Twitter for not pushing down rates more sharply.

Yet the Fed’s about-face on rates has been head-spinning. Just last year, the central bank raised its federal funds rate four times, capping nine increases since late 2015.

That push was aimed at preventing an eventual spike in inflation and bringing the rate back to normal after it hovered near zero for years after the Great Recession of 2007-09. The recent spurt of rate cuts has reversed just a third of the hikes.