The Federal Reserve voted to cut interest rates by .25% for the second time in 2 months and left the door open for additional cuts. 7 of 10 officials voted in favor of lowering the short-term benchmark to a range between 1.75% and 2%. As in July, two reserve bank presidents dissented from the decision in favor of holding rates steady.
“We took this step to keep the economy strong,” said Mr. Powell in a news conference after the decision.
He also indicated rates could be cut further if the economy weakened further, even though he said officials still have a positive outlook for the U.S. economy.
As the rate-setting committee “contemplates the future path” of its policy rate, “it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” the statement said, repeating language from July.
7 of 17 officials penciled in one more rate cut this year. The other 10 were split evenly between those who thought the new level of rates, after Wednesday’s cut, would be appropriate and those who thought rates shouldn’t have to go any lower.
For next year about half of officials projected rates by December 2020 would sit one-quarter point below the new level, while another half thought it would be appropriate to reverse at least one of the two recent cuts.
The Fed faces an unusual challenge setting policy given the volatile outlook for global trading. “There is a piece of this that we really can’t address,” said Mr. Powell. “It’s an unusual situation... It’s a challenging time, I admit it.”
U.S. economic data is a mixed picture. The statement noted household spending had been rising at a strong pace while business investment and exports had weakened. Manufacturing was also weak. Hiring has slowed this year. The private sector added 129,000 jobs on average over the three months ended August, down from 236,000 for the three-month period ended December. Recent revisions to employment and profit growth show that the economy over the past year wasn’t as strong as previously thought.
Some Fed officials have warned that waiting for signs of consumer spending and hiring to slow more sharply could require the Fed to deliver more aggressive stimulus at a time when its policy rate is already historically low.
Soon after the Fed announced its rate cut, Mr. Trump went to Twitter. “Jay Powell and the Federal Reserve Fail Again,” he wrote, one of 30 such statements about Fed policy since the July meeting. “No ‘guts,’ no sense, no vision! A terrible communicator!”
Mr. Powell responded saying the Fed doesn’t make policy decisions based on demands from political leaders and instead focuses on its congressional mandate to boost employment while keeping inflation stable. Unemployment is at 3.7% near a half-century low, while inflation, excluding volatile food and energy categories is 1.6%, below its 2% target.
Separately, the Fed announced steps designed to boost liquidity in short-term funding markets after the central bank was twice forced this week to inject cash into money markets to pull down interest rates.
The Fed’s benchmark rate rose to 2.3% on Tuesday, trading outside of its range of 2% to 2.25%, after technical factors and monetary and regulatory changes created shortages of funds for banks.
Earlier Wednesday, the New York Fed injected $75 billion in cash into money markets, following a $53 billion infusion on Tuesday.
At the two-day meeting, the Fed’s rate-setting committee lowered a separate interest rate paid to banks on deposits, known as reserves, held at the Fed, which could reduce banks’ demand for that cash and increase their lending in other money markets. The committee cut that rate and another borrowing rate by 0.3 percentage point, larger than the 0.25 percentage-point reduction in the fed-funds target.