WASHINGTON – The US Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second step since the end of July, to protect the US economy against rising political risks and the consequences of a global slowdown.  An increasing number of Fed officials are expecting a further cut this year, based on post-meeting economic forecasts that meet the expectations of investors and economists.
However, the Fed's announcement on Wednesday has done little to reassure President Trump to put pressure on the central bank to cut interest rates to zero – or even into negative territory. Fed rates are now in the range of 1
"Jay Powell and the Federal Reserve fail again. No "courage", no sense, no vision! A terrible communicator! Trump said in a tweet shortly after the announcement of the Fed.
Equities that fell slightly before the announcement fell further after the cut was announced. Just before 2:30 pm, the S & P 500 fell 0.7 percent and the Nasdaq Composite Index 1 percent. The yield on the 10-year Treasury note fell by around 1.77 percent during the day.
The Fed's decision was hampered by mixed economic signals. While risks cloud the horizon, economic data remains sound and forms a complicated background. Businesses are ceasing and consumers are giving out, but Mr Trump's trade war and the prospect of a reluctant British exit from the European Union have embarrassed the markets. I Inflation stayed below the Fed's 2% target, leaving officials room for lower interest rates without worrying about out-of-control price gains. This is appropriate to sustain expansion, "the statement said Comments from the Fed after the meeting, which had barely changed since July.
The Fed noted that corporate investment remains weak Asset investment and exports are weakening.
While mid-Fed officials expect interest rates to remain at their current levels by the end of the year, seven out of 17 expect another rate cut. This is an increase of zero officials who expected interest rates to remain stable when the central bank last issued economic forecasts in June. This indicates that momentum is shifting towards additional provisions.
However, officials are increasingly divided over what happens next. Three members of the Federal Open Market Committee, which set interest rates, disagreed on the vote this month. James Bullard, president of the Federal Reserve Bank of St. Louis, wanted a more drastic cut in interest rates by half a point and voted against a shift by just a quarter of a point. Esther George, head of the Federal Reserve Bank of Kansas, and Eric Rosengren, head of the Federal Reserve Bank of Boston, felt that the central bank should keep credit costs stable. Mrs George and Mr Rosengren also voted against the interest rate cut in July.
The differences underline the economic and political challenges faced by the Fed.
While the Fed is acting independently of the White House and responding to Congress, Mr. Trump has regularly resorted to criticizing Chairman Jerome H. Powell and his colleagues.
"The Federal Reserve Should Lower Our Interest Rates to ZERO or Less," Mr. Trump Tweeted on September 11th. "Only the naivety of Jay Powell and the Federal Reserve does not allow us to do what other countries already do." A look at the longer-term economic outlook, not short-term political concerns, but the onslaught of Trump creates an optical problem for the Fed. Part of the population could see interest rate cuts, as on Wednesday, as a sign that the central bank is giving in to political pressure, especially since it is not a unanimous decision.
However, there are economic reasons to lower interest rates sooner than later, as this could sustain the flow of credit and help keep consumer and business spending up as uncertainty increases.
The University of Michigan's Consumer sentiment index has fallen as a result of trade concerns, and the US economy is worried. This is reflected in the Business Roundtable CEO Economic Outlook index, which fell to a three-year low in the third quarter ,
The executives of the largest companies in the country have drastically reduced their investment plans and revenue expectations. Trading voltages were cited as the main cause of concern among companies.
At the same time, employers are still hiring, wages are rising and Americans have returned to the labor market in their best years. As households take better wages home, their spending keeps up and generates strong retail sales. Even the real estate market, which has had difficulties this year, is showing signs of tightening.
But global risks abound. Germany seems to be on the verge of a recession. Britain's exit from the European Union continues to be difficult, and the US trade war with China is slowing.
Mr. Trump has levied tariffs on Chinese goods worth $ 360 billion and plans to levy taxes on almost all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear if and when an agreement could be reached.
The Fed has also struggled to bring inflation up to its 2 percent target. The central bank aims for stable inflation low enough to ensure consumer comfort, but high enough to leave them with additional scope for rate cuts, including gains, during a downturn.
Inflation was 1.6 percent in July, based on the Fed's preferred bar, and has remained below the target for years. Inflation expectations, as measured by a New York Fed survey, have fallen short and long term.
The Fed also lowered the interest rate it pays for reserves – which are part of the central bank – to 1.8 percent, 0.20 percentage points below the top of the Fed's preferred range. This technical optimization is intended to keep the cursory Fed funds price in its range.
It also instructed the Federal Reserve Bank of New York to conduct open market transactions as needed and "to another instruction"
The move took place after several days of wild activity in an important corner of the financial markets.
The The overnight rate on repurchase agreements, which are short term loans used by financial institutions such as hedge funds and banks, jumped precipitously early in the week due to a lack of dollars, and some technical factors seemed to be contributing to the increase, including one Date of corporate tax, the recent issuance of government bonds that lowered liquidity, and the aftermath of the Fed's fallout.
The leap drove the Fed up The most important policy tool, the Fed Funds Rate, forced the Federal Reserve Bank of New York to take action to keep it up to date.