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Fed cuts interest rates, signals holding pattern for now

EconomySep 18, 2019 05:06PM ET
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By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) - The U.S. Federal Reserve cut interest rates again on Wednesday to help sustain a record-long economic expansion but signaled a higher bar to further reductions in borrowing costs, eliciting a fast and sharp rebuke from President Donald Trump.

Describing the U.S. economic outlook as "favorable," Fed Chair Jerome Powell said the rate cut was designed "to provide insurance against ongoing risks" including weak global growth and resurgent trade tensions.

"If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate," Powell said in a news conference after the Fed announced it had lowered its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.75% to 2.00%. It was the second Fed rate cut this year.

But, Powell said, "what we think we are facing here is a situation which can be addressed, which should be addressed, with moderate adjustments to the federal funds rate," noting that the U.S. labor market was strong and inflation was likely to return to the Fed's 2% annual goal.

"We are going to be highly data-dependent ... We are not on a pre-set course, we are going to be making decisions meeting by meeting," Powell said, adding that the Fed would stop cutting rates "when we think we've done enough."

Trump blasted Powell, saying the central bank chief had "No 'guts,' no sense, no vision!"

"A terrible communicator," Trump tweeted before Powell had even begun his news conference.

Underscoring divisions within the central bank, the quarter-point rate cut on Wednesday drew dissents from three of the 10 voting policymakers.

Kansas City Fed President Esther George and Boston Fed President Eric Rosengren called for no rate cut, and St. Louis Fed President James Bullard wanted a bigger half-point rate cut.

Forecasts from all 17 policymakers released at the end of the meeting showed even broader disagreement, with seven expecting a third rate cut this year, five seeing the current rate cut as the last for 2019, and five who appeared to have been against even Wednesday's move.

TECHNICAL ADJUSTMENTS

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.

In a hint that the Fed may soon take bigger steps, Powell acknowledged that strains in funding markets had been bigger than expected, and he said the central bank may need to resume increases to the Fed's balance sheet "earlier" than previously thought.

U.S. stocks, lower ahead of the statement, extended their losses and the U.S. Treasury yield curve flattened. The 10-year Treasury note yield (US10YT=RR) inched up to 1.79%.

The dollar gained ground against the euro (EUR=) and yen .

"Another rate cut from the Fed to try to shield the U.S. economy from global headwinds," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "Today’s move was more of a hawkish easing in that the Fed’s median forecasts for rates suggested no more cuts this year, while some officials dissented."

Still, traders of interest rate futures were betting on one more quarter-point rate cut this year.

New projections showed Fed policymakers at the median expected rates to stay within the new range through 2020.

"There is a lot of uncertainty" around rate-path views and the economic outlook, Powell said.

There was little change in policymakers' projections for the economy, with GDP 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 Fed also cut rates in July, the first such move since 2008, as it responded to risks from Trump's trade war with China and other overseas developments.

Fed cuts interest rates, signals holding pattern for now
 

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Hank Williams
Hank Williams Sep 19, 2019 10:37AM ET
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All the negative rhetoric about Powell changed when the president was asked why he didn't think about resolving the interest rate issue before talking trade. The little thinker.
Dunn Ng
Dunn Ng Sep 18, 2019 9:22PM ET
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cut rate it's mean economic downturn . don't tell that's still good condition
Erski Gumby
SB20 Sep 18, 2019 9:22PM ET
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Huh?
Tim Lee
Tim Lee Sep 18, 2019 7:01PM ET
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Let's do the math. 4(0 + .25) - (2 × .25) = ? -.5
Erski Gumby
SB20 Sep 18, 2019 7:01PM ET
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It’s not -.5 according to my 4th grade son.
Steven Ownz
Turtle_Steven Sep 18, 2019 4:38PM ET
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it is definitely going in a preset course. we have gone from hike to cut and now signaling QE. looks like trump does know more than feds in a sense that he called it months ago on QE, and cut as well before any cut materialized. LoL.
TA XVCI
TA XVCI Sep 18, 2019 4:38PM ET
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Next QE going to be bad due to trade wars footprint.
Erski Gumby
SB20 Sep 18, 2019 4:38PM ET
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Looks like the US is doing fine rifht now with the trade war.
Marec Huber
Marec Huber Sep 18, 2019 4:38PM ET
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Perhaps than,if Trump isnt reelected ,he can become the next Federal Reserve President.Humm ?Lol.
Jason Patcher
Jason Patcher Sep 18, 2019 4:38PM ET
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haha, best comment today on Trump as fed chair. That is hilarious but he was asking months ago.
Derek Klardie
Derek Klardie Sep 18, 2019 3:21PM ET
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Already shooting their bullets before we even have a crisis
Andrew carson
Andrew carson Sep 18, 2019 3:21PM ET
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They are shooting bbs when bullets are needed. Wait until it's staring you in the face is way too late. The typical Fed though really minus Big Ben.
Grant Hagen
Grant Hagen Sep 18, 2019 3:21PM ET
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Not a crisis the general public knows about anyway
Hank Williams
Hank Williams Sep 18, 2019 3:09PM ET
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Come on WS don't you have any....
Brady Murray
Brady Murray Sep 18, 2019 3:00PM ET
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Of course they give mixed signals. Keep everyone guessing. Tank markets
Pwr Strk
Pwr Strk Sep 18, 2019 2:59PM ET
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market reaction: flat ... previously digested
Pwr Strk
Pwr Strk Sep 18, 2019 2:59PM ET
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party starts tomorrow though... all invited
Erski Gumby
SB20 Sep 18, 2019 2:59PM ET
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