Federal Reserve cuts interest rates by a quarter of a percentage point

BREAKING NEWS: Federal Reserve cuts interest rates by another quarter of a percentage point and hints at more to come as Trump blasts chairman Jay Powell for modest ‘no guts’ move

• Federal Reserve cuts benchmark overnight lending rate to a range of 1.75% to 2.00% on a 7-3 vote
• It says the U.S. economy continues growing at a ‘moderate’ rate and the labor market ‘remains strong’
• But it says  it was cutting rates ‘in light of the implications of global developments for the economic outlook’
• Fed cited ‘uncertainties’ about the outlook and pledged to ‘act as appropriate’ to sustain the expansion
• ‘No “guts,” no sense, no vision,’ blasted President Trump as he mocked Fed chairman Jay Powell for making moves that are too modest

 The U.S. Federal Reserve cut interest rates by a quarter of a percentage point for the second time this year on Wednesday in a widely expected move meant to sustain a decade-long economic expansion, but gave mixed signals about what may happen next.

President Donald Trump, traveling in California, quickly made it known that he believes the move is too small and too late to help the U.S. economy grow in line with its potential.

‘Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!’ Trump wrote on Twitter. 

The central bank also widened the gap between the interest it pays banks on excess reserves and the top of its policy rate range, a step taken to smooth out problems in money markets that prompted a market intervention by the New York Fed this week.

Though the U.S. economy continues growing at a ‘moderate’ rate and the labor market ‘remains strong,’ the Fed said in its policy statement that it was cutting rates ‘in light of the implications of global developments for the economic outlook as well as muted inflation pressures.’

Federal Reserve chairman Jerome Powell has been under pressure from Donald Trump to cut rates, and the board responded on Wednesday with the second reduction in two months

The president tweeted following the rate cut announcement that it was too little and too late, saying Powell had no ‘guts’

With continued growth and strong hiring ‘the most likely outcomes,’ the Fed nevertheless cited ‘uncertainties’ about the outlook and pledged to ‘act as appropriate’ to sustain the expansion.

In lowering the benchmark overnight lending rate to a range of 1.75% to 2.00% on a 7-3 vote, the Fed’s policy-setting committee nodded to ongoing global risks and ‘weakened’ business investment and exports.

New projections showed policymakers at the median expected rates to stay within the new range through 2020. However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected one more quarter-point rate cut in 2019.

Five others, in contrast, see rates as needing to rise by the end of the year.

The divisions were reflected in dissents that came from both hawks and doves.

St. Louis President James Bullard wanted a half-point cut while Boston Fed President Eric Rosengren and Kansas City Fed President Esther George did not want a rate cut at all.

Trump is impatient because he sees interest rate cuts as a key booster of economic growth

There was little change in policymakers’ projections for the economy, with growth seen at a slightly higher 2.2% this year and the unemployment rate to be 3.7% through 2020. Inflation is projected to be 1.5% for the year, below the Fed’s 2% target, before rising to 1.9% next year.

The rate cut fell short of the more aggressive reduction in borrowing costs that President Donald Trump had demanded from Fed officials, whom he has insulted as ‘boneheads’ who have put the economic recovery in jeopardy.

The Fed also cut rates in July, the first such move since 2008.

Fed officials have said the rate cuts are justified largely because of risks raised by Trump’s trade war with China, a global economic slowdown and other overseas developments.

Their aim, they say, is to balance the potential need for lower rates against the risk that cheaper money may cause households and businesses to borrow too much, as happened in the run-up to the financial crisis more than a decade ago.

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