WASHINGTON: The Federal Reserve cut interest rates on Wednesday, but the head of the US central bank said the move might not be the start of a lengthy campaign to shore up the economy against risks including global weakness.
Fed Chairman Jerome Powell cited signs of a global slowdown, simmering US 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 move up plans to stop winnowing its massive bond holdings.
“Let me be clear — it’s not the beginning of a long series of rate cuts,” Powell said in a news conference after the Fed released its latest policy statement. At the same time, he said, “I didn’t say it’s just one rate cut.” 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, but many traders expected clearer confirmation of forthcoming rate cuts.
US President Donald Trump, who has repeatedly attacked the Fed’s policy stance under Powell and demanded that it push through big rate cuts, said on Twitter the Fed chief “let us down” by not telegraphing that an aggressive easing was coming.
US stock prices fell during Powell’s news conference. The benchmark S&P 500 index closed down 1.1 per cent for the day. Yields on 2-year notes, a proxy for Fed policy rates, rose to 1.87 per cent.
Ken Polcari, managing principal at Butcher Joseph Asset Management, said Powell’s message was “not what the market was expecting to hear” even though most traders expected a rate cut. “He is not shutting the door, but he is also not saying there is another one coming in September, so hold on,” Polcari said.
Heading into Wednesday’s Fed decision, the S&P 500 was up about 3 per cent since June 19, when the Fed first signalled a rate cut was likely as it pledged then to “act as appropriate to sustain” the record-long US expansion.
In a statement at the end of a two-day policy meeting, the Fed said it decided to cut rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures.” It said it will “continue to monitor” how incoming information affects the economy and that it will “act as appropriate to sustain” the 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 First Franklin Financial Services in Tallahassee, Florida.
The US dollar index gained ground to touch its highest in more than two years. The index, which measures the greenback against a basket of currencies, was up about 0.5 per cent on the day. — Reuters
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