US Fed cuts key interest rate a quarter point, citing 'uncertainties'

Agence France-Presse

Posted at Sep 19 2019 03:56 AM

The US Federal Reserve cut its benchmark interest rate for the second time this year on Wednesday but its policy committee is divided, with three of 10 voting members dissenting.

The central bank also moved to ease concerns about a cash crunch on financial markets by adjusting its key policy tool to help pump more funds through the financial plumbing.

The Fed's policy-setting Federal Open Market Committee lowered the policy interest rate by 25 basis points to a target range of 1.75 to 2.0 percent, as expected, and has now pulled back on half of the four interest rate increases it adopted in 2018.

"Although household spending has been rising at a strong pace business fixed investment and exports have weakened," the FOMC said in a statement.

And while officials continue to believe the most likely outcome is for the economy to continue to grow and inflation to gradually increase, "uncertainties about this outlook remain."

Powell and other Fed officials frequently have cited the uncertainty generated by President Donald Trump's trade war with China which is hanging over the economy.

Trump wasted no time in slamming the Fed on Twitter -- continuing his relentless campaign to pressure the central bank to provide additional stimulus to the economy.

"Jay Powell and the Federal Reserve Fail Again. No 'guts,' no sense, no vision! A terrible communicator!"

Downplaying concerns
Powell also downplayed concerns over a surge in funding pressures in money markets this week, noting the demand for cash to pay quarterly tax payments was a factor.

A cash shortage in recent days prompted the New York Fed on Tuesday and Wednesday to pump $128 billion into the short-term market as interest rates soared and threatened to break out of the Fed's target range.

"While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy," Powell told reporters. 

The Fed also cut the interest it pays to banks on cash reserves above the required level by 30 basis points to 1.8 percent, in a bid to push more cash into markets. 

Divided committee
Powell's position is complicated by the clear division on the committee: one member wanted an even steeper rate cut while two others opposed cutting rates at all.

The Fed's quarterly economic forecast also reflects the division among central bankers, as the median forecast calls for no further rate increases through the end of 2020 -- holding at 1.9 percent down from 2.4 percent in the June forecasts.

That contradicts most private economists who expect the central bank will feel the need to provide at least one more reduction in interest rates in 2019.

But it reflects the fact that five members expect or prefer a rate hike, five see no change, and seven forecast or want to see another rate cut.

And that division comes even as the median forecasts for growth an unemployment are about steady, with inflation gradually rising to the Fed's target of two percent.