U.S. Fed lowers key interest rate a third time

The U.S. Federal Reserve building at Washington, DC.   | Photo Credit: AFP

The U.S. Federal Reserve cut its benchmark interest rate for the third straight time on Wednesday, but the central bank remains divided, with two of the 10 voting members dissenting.

And the Fed's policy-setting Federal Open Market Committee (FOMC) made a key change in the wording of the statement, which makes it less certain it will make another move in December.

The FOMC lowered the policy interest rate by 25 basis points to a target range of 1.5-1.75%, as expected, pulling back another of the four interest rate increases it implemented in 2018.

Fed Chairman Jerome Powell is due to hold a press conference at 1830 GMT ( 12:00 a.m. IST) to explain the central bank's rationale but he will face a difficult balancing act.

Policymakers believe continued growth and strong employment “are the most likely outcomes but uncertainties about this outlook remain,” the FOMC said in the announcement.

But in a key edit to the prior statement, the Fed removed the pledge to “act as appropriate to sustain the expansion.”

Instead, it said, 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.”

As analysts scrutinize every phrase, they likely will read that as a leaving the door open to a pause in the easing cycle, which Powell has called a “mid-cycle adjustment.”

As President Donald Trump's trade war with China has hit manufacturing and created uncertainty that together with concerns about Brexit have slammed the brakes on investment, economists expected this move to help bolster a softening American economy.

But GDP in the July-September quarter was surprisingly solid, growing 1.9%, boosted by a strong housing sector and healthy consumer spending, according to data released on October 30.

U.S. hiring continues and unemployment is low, while inflation is creeping up to the Fed's 2.0% target.

However, the trade war uncertainty has hit the global economy, and the U.S. data contained concerning signs as well, even as the American consumer continues to carry the weight of the expansion on their backs.

And several recent surveys show about a third of economists believe the U.S. economy could slip into recession in the next 12 months. All show the number has increased in recent weeks.

Esther George, head of the Kansas City Federal Reserve Bank, and Boston's Eric Rosengren both opposed the latest move, just as they voted against the previous two rate cuts.

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Printable version | May 3, 2021 11:33:46 PM |

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