The Federal Reserve has cut interest rates as widely expected, aiming to shore up the US economy against risks, including global weakness.
But the bank’s boss, Fed chairman Jerome Powell, has warned he does not view the move as the start of a lengthy series of cuts.
Mr Powell cited global weakness, simmering trade tensions and a desire to boost too-low inflation in explaining the central bank’s decision to lower borrowing costs for the first time since 2008 and bring forward plans to stop winnowing its massive bond holdings.
Financial markets had widely expected the Fed to reduce its key overnight lending rate by a quarter of a percentage point to a target range of 2.00 per cent to 2.25 per cent. Many traders also expected a clearer confirmation of forthcoming rate cuts.
Thursday’s move was not enough for US President Donald Trump, who said the Fed had “let us down” with its quarter-percentage-point interest rate cut. The market wanted a signal that a “lengthy and aggressive rate-cutting cycle” was under way, he said.
“What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world,” MR Trump tweeted just hours after the US central bank’s move.
“As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place.”
….As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place – no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!
— Donald J. Trump (@realDonaldTrump) July 31, 2019
Mr Trump has repeatedly harangued the central bank and Mr Powell for not doing enough to help his administration’s efforts to boost economic growth.
In a statement at the end of its latest two-day policy meeting, the Fed said it had decided to cut rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures”.
The central bank also said it would “continue to monitor” how incoming information would affect the US economy and “will act as appropriate to sustain” a lengthy economic expansion.
“It’s smart of them to go ahead and take out some insurance here. It’s better than none at all,” said Brett Ewing, chief market strategist at Florida’s First Franklin Financial Services.
Speaking after the release of the statement, Mr Powell, characterised the cut as “a mid-cycle adjustment to policy” – comments that do not imply sharp further cuts are likely to follow.
US stock prices fell after the Fed’s statement and during Mr Powell’s media conference.
The Fed’s policy decision drew dissents from Boston Fed president Eric Rosengren and Kansas City Fed president Esther George, who had argued for leaving rates unchanged.
“This is the most dissent we’ve had in the current Fed; we had two hawkish dissenters on this decision,” said Eric Donovan, managing director of over-the-counter foreign exchange and interest rates at INTL FCStone.
Mr Rosengren and Mr George have raised doubts about a rate cut in the face of the current US expansion, an unemployment rate that is near a 50-year-low, and robust household spending.
The Fed said in its statement it continued to regard the US labour market as “strong” and added that household spending had “picked up”. But it noted business spending was soft and measures of inflation compensation remain low.
The Fed said the cut should help return inflation to its 2 per cent target but uncertainties about that outlook remained. Sustained expansion of economic activity and a strong labour market were also likely outcomes, it said.
Underscoring its decision to ease policy across the board, the Fed also said it would stop shrinking its $US3.6 trillion in bond holdings from August 1, two months ahead of schedule.
“I think ending the quantitative tightening right here was also a good call,” Mr Ewing said.