Nation & World

Fed cuts interest rate by quarter-point

Goal is to keep economy on track, chairman says

Reuters

Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington, D.C.
Reuters Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington, D.C.
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WASHINGTON — The Federal Reserve reduced the benchmark interest rate Wednesday by a quarter-point, to about 2.25 percent.

The modest and widely expected move is meant to keep the economy healthy in the face of headwinds from the current trade war and slower growth overseas.

It’s the first interest-rate reduction since December 2008, when the nation was in the midst of the Great Recession.

Fed Chairman Jerome Powell, a frequent target of President Donald Trump’s ire, said the Fed took this action to keep the economy growing for as long as possible.

But stocks fell sharply with the Dow Jones industrial average shedding more than 300 points after Powell said this was not “the beginning of a lengthy cutting cycle,” suggesting there could be a few rate cuts but not many.

“Let me be clear. It’s not the beginning on a long series of rate cuts. I didn’t say it’s just one (cut) or anything like that,” Powell said.

“It’s appropriate to adjust monetary policy to a somewhat more accommodative stance.”

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Wall Street has been pricing in at least three rate cuts this year. Trump has bashed the Fed repeatedly in the past year and called for a “large” cut in interest rates.

The Fed historically has hardly ever cut rates just once, and Fed leaders appeared to keep the door open to additional easing later this year.

In addition to the rate reduction, the Fed announced that it would stop selling off its $3.8 trillion assets in August — two months earlier than expected and another easing move.

The Fed bought a large amount of Treasury bonds and mortgage-backed securities in the aftermath of the financial crisis to keep interest rates low, but it started to sell some of its holdings in recent months because the Fed didn’t think that extra stimulus was necessary anymore.

Now the Fed is putting this on hold.

“Weak global growth, trade policy and muted inflation” prompted the Fed’s actions Wednesday, Powell said.

He characterized the nation’s economy as “positive” and said most of the problems are coming from oversees. He specifically mentioned Europe and China by name.

“There is really nothing in the U.S. economy that presents a prominent near-term threat. ... There is no segment or sector that is really boiling over,” Powell said.

“Downside risks are really coming from abroad.”

Two out of 10 members of the Fed’s rate-setting committee dissented Wednesday. Boston Fed President Eric Rosengren and Kansas City Fed President Esther George said rates should be left unchanged.

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Former Fed leaders say Powell and his colleagues are making good calls and that Trump’s tweets and criticism are not swaying anyone on the committee.

“I know Jay Powell very well. The chance he would buckle to what the president of the United States said about policy above his knowledge of how it works just seems inconceivable” said former Fed Chairman Alan Greenspan.

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