Fed Cuts Rate for 3rd Time This Year, Signals Pause in Reductions

WASHINGTON—The Federal Reserve cut its benchmark federal funds rate on Oct. 30 for the third time this year to sustain U.S. economic expansion in the face of a global slowdown and ongoing trade risks that weigh on business confidence.

After its two-day policy meeting, the U.S. central bank decided to slash its target interest rate by 25 basis points to a range of 1.50 percent from 1.75 percent. Then it signaled that the current cycle of lowering rates could be over.

A statement of the Federal Open Market Committee reflected a robust labor market and moderate economic growth.

“The labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low,” the statement said. “Although household spending has been rising at a strong pace, business fixed investment and exports remain weak.”

The policymakers removed the language used in previous statements that said the committee would “act as appropriate to sustain the expansion.”

Instead, they replaced it with a milder statement: “The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

This year, the Fed made three rate reductions totaling 75 basis points.

In his opening remarks at a press conference, Federal Reserve Chairman Jerome Powell said that the committee believed “monetary policy is in a good place.”

“Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Policy is not on a preset course,” he said.

He noted that the weakness in global growth, trade tensions, as well as “muted inflation pressures” have led the Fed to lower rates.

According to Powell, the phase one trade agreement with China has the potential to reduce trade tensions and uncertainty, which could boost business confidence and “perhaps activity over time.”

Stocks turned positive after Powells speech, with the Dow Jones Industrial Average closing the day 0.4 percent higher. S&P 500 also rose 0.3 percent.

The federal funds rate refers to the interest rate that banks charge each other for overnight lending, but it influences borrowing costs of all types of loans, including mortgages, auto loans, and student loans.

Two of 10 Fed officials dissented from the rate-cut decision, preferring to maintain the rates steady. These two officials disapproved of the rate cuts in the Feds July and September meetings as well.

Consumers Support the Economy

Powell said the consumer sector continues to be strong as witnessed in the third quarter economic growth data published on Oct. 30.

The U.S. economy grew at 1.9 percent in the third quarter, beating estimates. Weakness in business investment was offset by resilient consumer spending, which accounts for 70 percent of economic activity.

Powell said the Feds monetary policy has supported “household spending and home buying by keeping the labor market strong, keeping workers income rising, and keeping consumer confidence at high levels.”

President Donald Trump has long been critical of the central bank. In recent months, he stepped up his pressure on policymakers aRead More – Source