Fed Cuts Interest Rates for First Time Since 2008 Crisis

Mr. Powell said the committee viewed the move as a “mid-cycle adjustment to policy,” suggesting that the Fed sees this cut as more similar to two instances in the 1990s, during which the Fed moved rates down slightly to get the economy through periods of uncertainty, rather than the beginning of a rate-cutting campaign.

The Fed’s rate cut carries political risks, given Mr. Trump’s attacks on the central bank. Mr. Trump has been denouncing the Fed in speeches and on Twitter for the past year, criticizing its four 2018 rate increases and blaming its policies for slowing the American economy. Some onlookers may see Wednesday’s move as caving to the president.

The Fed operates independently of the White House. It attributed the change, which officials have been signaling for months and which investors fully expected, to growing economic concerns.

“We also don’t conduct monetary policy to prove our independence,” Mr. Powell said.

The central bank is trying to extend a record-long economic expansion, because officials believe that doing so will allow the Fed to achieve its goals of maximum employment and slow but steady inflation. The unemployment rate is hovering around its lowest level in 50 years, but that has yet to push wages dramatically higher in a way that forces companies to lift prices more quickly.

Inflation has run shy of the Fed’s 2 percent goal since the central bank formally adopted it in 2012. A little inflation helps to grease the wheels of a healthy economy, allowing businesses to raise wages faster and lifting interest rates, giving the central bank more room to cut in the event of a downturn.

Prices picked up just 1.6 percent in the year through June, not counting volatile food and fuel costs.

Wages are growing only moderately. An index of employment costs climbed by 2.7 percent in the second quarter from a year earlier, less than expected and a slowdown from earlier in 2019, according to data released on Wednesday.

Article source: https://www.nytimes.com/2019/07/31/business/economy/federal-reserve-interest-rate-cut.html?emc=rss&partner=rss