The US Federal Reserve on Wednesday cut interest rates again to help sustain a record-long economic expansion, but signaled a higher bar to further reductions in borrowing costs, eliciting a fast and sharp rebuke from US President Donald Trump.
Describing the US economic outlook as “favorable,” Fed Chairman Jerome Powell said that the rate cut was designed “to provide insurance against ongoing risks,” including weak global growth and resurgent trade tensions.
“If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate,” Powell told a news conference after the Fed announced that it had lowered its benchmark overnight lending rate by one-quarter of a percentage point to a range of 1.75 to 2 percent.
It was the second Fed rate cut this year, but Powell said: “What we think we are facing here is a situation which can be addressed, which should be addressed, with moderate adjustments to the federal funds rate.”
The US labor market is strong and inflation is likely to return to the Fed’s 2 percent annual goal, he added.
“We are going to be highly data-dependent... We are not on a pre-set course, we are going to be making decisions meeting by meeting,” Powell said, adding that the Fed would stop cutting rates “when we think we’ve done enough.”
Trump blasted Powell, saying the central bank chief had “No ‘guts,’ no sense, no vision!”
“A terrible communicator,” Trump tweeted before Powell had even begun his news conference.
Underscoring divisions within the central bank, the rate cut on Wednesday drew dissents from three of the 10 voting policymakers.
Kansas City Fed President Esther George and Boston Fed President Eric Rosengren called for no rate cut, and St Louis Fed President James Bullard wanted a bigger half-point rate cut.
Forecasts from all 17 policymakers released at the end of the meeting showed even broader disagreement, with seven expecting a third rate cut this year, five seeing this rate cut as the last for this year, and five who appeared to have been against even Wednesday’s move.
The central bank also widened the gap between the interest it pays banks on excess reserves and the top of its policy rate range, a step taken to smooth out problems in money markets that prompted a market intervention by the New York Fed this week.
In a hint that the Fed might soon take bigger steps, Powell said strains in funding markets had been bigger than expected, and that the central bank could need to resume increases to the Fed’s balance sheet “earlier” than previously thought.
US stocks, lower ahead of the statement, extended their losses and the US Treasury yield curve flattened. The 10-year Treasury note yield inched up to 1.79 percent.
The US dollar gained ground against the euro and yen.
New projections showed Fed policymakers at the median expected rates to stay within the new range through next year.
“There is a lot of uncertainty” around rate-path views and the economic outlook, Powell said.
There was little change in policymakers’ projections for the economy, with GDP growth seen at a slightly higher 2.2 percent this year and the unemployment rate expected to be 3.7 percent through next year.
Inflation is projected to be 1.5 percent for the year, below the Fed’s 2 percent target, before rising to 1.9 percent next year.
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