JAKARTA (TheInsiderStories) – United States (US) Federal Open Market Committee (FOMC) decided to lower the target range for the federal funds rate (FFR) to 1-1/2 to 1-3/4 percent, the third such move in 2019. The board of policymakers also signaled they likely won’t need to cut interest rates again unless economic conditions change significantly.
Beside cut the FFR, the committee also cut overnight lending rate benchaa quarter-point to a range of 1.5 percent – 1.75 percent, the third such move in 2019. The cuts have been positioned as “a mid-cycle adjustment” to help shield the US economy from the trade war and slowing global growth.
“Most participants judged that the stance of policy, after a 25 basis point reduction at this meeting, would be well-calibrated to support the outlook of moderate growth, a strong labor market, and inflation near the committee’s symmetric 2 percent objective,” said the committee.
In the minutes, there was little discussion of what a “material” reassessment would involve, bar two policymakers who wanted the Fed to make plain that another rate cut would be unlikely in the near term unless there was a significant slowdown in the pace of economic growth. Dallas Fed President Robert Kaplan has since said the price of his support was such a statement being made.
They maintained, however, that policy isn’t on a preset course, even if it is likely to remain on hold, and members will continue to assess changes in data and the general outlook.
Members often note that Fed policy adjustments work on a lag that can take a year or more to be felt, so they intend on watching how the switch to the easier policy will impact financial conditions. The cuts started in July, just seven months after the committee approved the fourth rate hike of 2018.
The chairman, Jerome Powell, in congressional testimony last week, said he also felt comfortable with the stance of policy. That includes the low probability of a rate hike as well: Following the Oct. 29-30 FOMC meeting, he further stated that he doesn’t expect increases unless there is a significant move up in inflation.
Discussions at the meeting indicated that members feel the US economy is in a fairly strong position, with a healthy labor market and strong spending appetite among consumers, whose activity accounts for about 70 percent of GDP. The Fed is forecasting the economy growing 2.2 percent this year, slightly above its potential, which the central bank estimates at around 2 percent.
However, they also see “the downside risks surrounding the economic outlook as elevated, further underscoring the case for a rate cut” at the October meeting. They cited reduced business investment and exports resulting from “weakness in global growth and elevated uncertainty regarding trade developments.”
FOMC members voting in favor of the rate cut also cited the benefits lower rates would provide as an insurance policy against trouble ahead. They also continued to express concern about inflation that runs consistently below the Fed’ 2 percent target. All but two committee members voted for the cut, with the dissents believing that no further accommodation was needed.
Written by Lexy Nantu, Email: firstname.lastname@example.org