Wednesday, September 18, 2019

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WASHINGTON — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second cut since late July, and suggested it was prepared to move aggressively if the United States economy shows additional signs of weakening.
For now, a growing number of Fed officials expect just one more cut this year, based on economic projections released following the meeting, in line with investor and economist expectations.
Fed Chair Jerome H. Powell, speaking at a news conference said that the United States economy remains strong and unemployment is low but that “there are risks to this positive outlook.” If the economy weakens, a “more extensive” series of rate cuts would be appropriate, he said.
“Our eyes are open, we’re watching the situation,” Mr. Powell said, explaining that the Fed will stop cutting rates to sustain the expansion “when we think we’ve done enough.”



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“There may come a time when the economy weakens and we would have to cut more aggressively,” he said. “We don’t know.”
The Fed’s announcement on Wednesday did little to appease President Trump, who has been pushing the central bank to cut interest rates to zero — or even into negative territory. The Fed’s policy interest rate is now set in a range of 1.75 to 2 percent, and not a single official sees it falling lower than 1.5 to 1.75 percent through the end of 2022.
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“Jay Powell and the Federal Reserve Fail Again,” Mr. Trump said in a tweet shortly after the Fed’s announcement. “No ‘guts,’ no sense, no vision! A terrible communicator!”
Stocks, which were down slightly before the announcement, fell further afterward. Shortly before 2:30 p.m., the S&P 500 index was down 0.7 percent and the Nasdaq was down 1 percent. The yield on the 10-year Treasury note was down on the day, at roughly 1.77 percent.
The Fed’s decision-making has been complicated by mixed economic signals. While risks cloud the horizon, economic data remain solid, creating a complicated backdrop. Businesses are hiring and consumers are spending, but Mr. Trump’s trade war and prospects of an unruly British withdrawal from the European Union have markets on edge. Inflation has been stuck below the Fed’s 2 percent target, giving officials room to lower rates without worrying about runaway price gains.

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Mr. Powell said the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks.” Mr. Powell said trade uncertainty and geopolitical tensions necessitated action.



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CreditT.J. Kirkpatrick for The New York Times
“Since the middle of last year, the global growth outlook has weakened,” Mr. Powell said. “Trade policy tensions have waxed and waned,” and “elevated uncertainty” is weighing on business investment and exports, he said.
In its official statement after its meeting, the Fed said policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. Not a single official expected three rate cuts in 2019 when the central bank last released economic projections in June, suggesting that momentum is shifting toward additional accommodation.
Mr. Powell addressed that shift, saying the change in the Fed’s policy stance over the course of the year is “the main takeaway.”
But officials are increasingly divided over what happens next. Three members of the rate-setting Federal Open Market Committee dissented in this month’s vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, wanted a more drastic half-point rate cut and voted against moving by just a quarter point. Esther George, who heads the Federal Reserve Bank of Kansas, and Eric Rosengren, who heads the Federal Reserve Bank of Boston, thought that the central bank should keep borrowing costs steady. Ms. George and Mr. Rosengren also voted against the July rate cut.

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Mr. Powell acknowledged the divisions, calling it “a time of difficult judgments” but saying he welcomed “diverse perspectives.”
He added that the bulk of the committee is going “meeting by meeting.”
The dissents underscore the economic and political challenges facing the Fed.
While the Fed operates independently of the White House and answers to Congress, Mr. Trump has made a regular habit of criticizing Mr. Powell and his colleagues.
“The Federal Reserve should get our interest rates down to ZERO, or less,” Mr. Trump tweeted on Sept. 11. “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”
Officials regularly say they set policy with an eye to the longer-term economic outlook, not short-term political concerns, but Mr. Trump’s onslaught creates an optics problem for the Fed. Some share of the population could see rate cuts, like Wednesday’s, as a sign that the central bank is caving to political pressure, particularly given that it was not a unanimous decision.
But there is an economic rationale for lowering rates sooner rather than later, since doing so could keep credit flowing, helping to keep consumer and business spending as uncertainty climbs.


Why the Fed Lowered Interest Rates Again

The Federal Reserve lowered interest rates for the second time this year, as it tries to guard the United States economy against trade-related uncertainty and slowing global growth.
The University of Michigan consumer sentiment index has drifted lower recently on the back of trade concerns, and jitters about the United States economy were also reflected in the Business Roundtable’s C.E.O. Economic Outlook Index, which declined to a three-year low in the third quarter.

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Chief executives of the nation’s largest corporations have sharply lowered their plans for capital investment and their expectations for sales. Trade tensions were cited as a major factor for the worry that companies are feeling.
At the same time, employers are still hiring, wages are gradually rising and Americans in their prime have been coming back into the labor force. As households take home better paychecks, their spending is holding up, fueling strong retail sales. Even the housing market, which has struggled this year, shows signs of firming.
But global risks abound. Germany seems to be teetering on the brink of recession. Britain’s exit from the European Union remains fraught, and the United States’ trade war with China is dragging on.
Mr. Trump has placed tariffs on $360 billion worth of Chinese goods and plans to impose levies on nearly all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear whether and when a deal could be reached.
The Fed has also struggled to coax inflation up to its 2 percent goal. The central bank aims for steady inflation that is low enough to allow for consumer comfort but high enough to leave policymakers extra headroom to cut interest rates, which include price gains, during a downturn.
Inflation came in at 1.6 percent in July, based on the Fed’s preferred gauge, and has been mired below its target for years. Inflation expectations, as measured by one New York Fed survey, have slipped both in the short- and the longer-term.

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The Fed also lowered the rate of interest it pays on reserves — money commercial banks park at the central bank — to 1.8 percent, 0.2 percentage point below the top of the Fed’s preferred range. That technical tweak is meant to keep the Fed funds rate, which has been creeping up, anchored within its range.
It also directed the Federal Reserve Bank of New York’s trading desk to execute open market transactions as necessary and “until instructed otherwise,” to keep short-term lending rates from rising above the Fed’s target.
The move came after several days of wild activity in an important corner of financial markets.
The overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few technical factors seemed to contribute to the spike — including a corporate tax date, recent government bond issuance that sopped up cash and the aftereffects of the Fed’s shrinking of its balance sheet.
The jump pushed up the Fed’s key policy tool, the Fed funds rate, and forced the Federal Reserve Bank of New York to spring into action to keep it in line, a first since 2008.


Alan Rappeport contributed reporting from Washington and Matt Phillips from New York.




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