The Federal Reserve reduced interest rates for the first time since the financial crisis and hinted it may cut again this year to insulate the record-long U.S. economic expansion from slowing global growth.
Central bankers voted, with two officials dissenting, to lower the target range for the benchmark rate by a quarter-percentage point to 2.00%-2.25%. The shift was predicted by most investors and economists, yet will disappoint
“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the committee decided to lower’’ rates, the Federal Open Market Committee, led by Jerome Powell, said in a statement following a two-day meeting in Washington. It also noted that “uncertainties” about the economic outlook remain.
Officials also stopped shrinking the Fed’s balance sheet effective Aug. 1, ending a process that very modestly tightens monetary policy and was previously scheduled to come to a close at the end of September.
Policymakers appeared open to another cut as early as September when they next convene, while sticking with wording in their statement that preserves their options.
“As the committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” they said.
Kansas City Fed President Esther George and Boston’s Eric Rosengren voted against the cut. The statement said they “preferred at this meeting to maintain the target range for the federal funds rate.” It was the first time since Powell took over as chairman in February 2018 that two policy makers dissented.
Investors had forecast the Fed to continue easing monetary policy this year, with futures pricing the key rate to fall about another half-point by January. U.S. stocks rose to a record last week in anticipation of easier money, while the yield on two-year Treasuries has undershot 2% since May.
Powell holds a press conference at 2:30 p.m., ET, with investors eager for clues on how much lower the Fed will go.
While the domestic economy has performed relatively well, the Fed cut amid concern that softness abroad threatens the decade- long U.S. expansion. Trump’s trade war with China is hurting foreign demand. Data released earlier Wednesday showed the pace of quarter-over-quarter growth in the euro area slowed by half in the latest three months to 0.2%.
In the U.S., after growing 2.5% last year, fueled by now-fading tax cuts and higher government spending, the economy expanded at a 2.1% annualized pace in the second quarter. The trade dispute was blamed for a manufacturing slowdown and the first drop in business investment since 2016.
In their assessment of the U.S. economy, officials made only minor changes to their statement language.
