Federal Reserve Lowers Interest Rates By A Quarter Point
In a widely anticipated move, members of the Federal Reserve’s Federal Open Market Committee voted Wednesday to lower interest rates by a quarter point.
The Fed said it decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent, down 25 basis points from the previous range of 2-1/4 to 2-1/2 percent. This marks the first rate cut by the Fed since December of 2008.
The implications of global developments for the economic outlook as well as muted inflation pressures were cited as reasons for the rate cut.
The vote to cut rates was not unanimous, however, with Kansas City Fed President Esther George and Boston Fed President Eric Rosengren preferring to keep rates unchanged.
In his subsequent press conference, Fed Chairman Jerome Powell described the rate cut “essentially as a mid-cycle adjustment to policy.”
Powell suggested that today’s rate cut should not be seen as “the beginning of a lengthy cutting cycle,” adding, “That is not what we’re seeing now, that’s not our perspective now.”
The Fed decided to cut rates even though its assessment of the economy was largely unchanged, noting that data received since the last meeting indicates the labor market remains strong and economic activity has been rising at a moderate rate.
The central bank’s statement did note that market-based measures of inflation compensation have declined after previously saying the measures remain low.
While the Fed said a sustained expansion of economic activity, strong labor market conditions, and inflation near its 2 percent objective are the most likely outcomes, the central bank said uncertainties about this outlook remain.
The Fed said it will continue to monitor the implications of incoming information for the economic outlook and reiterated that it will act “as appropriate to sustain the expansion.”
President Donald Trump has repeatedly urged the Fed to lower rates, claiming in a post on Twitter on Monday that the central bank has “made all of the wrong moves” and that a “small rate cut is not enough.”
Since the rate cut comes amid signs of continued economic growth, the Fed is likely to face accusations of bending to political pressure.
However, the Fed previously indicated several members believe a near-term rate cut is appropriate from a risk-management perspective, as it could help cushion the effects of possible future adverse shocks to the economy.
The Fed said the timing and size of future adjustments to rates will be determined based on realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.
In addition to cutting rates, the central bank revealed the reduction of bonds it is holding on its balance sheet will conclude in August, two months earlier than previously indicated.
The Fed is scheduled to make its next monetary policy decision following a two-day FOMC meeting on September 17 and 18.
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