September 16, 2019

Fed Was Divided About Interest Rate Cut

The Fed’s target rate — currently 2 to 2.25 percent — is already much lower than in previous economic cycles.

Market pricing suggests that investors anticipate two or three more cuts this year, based on a tracking tool from CME Group.

Mr. Trump, who has criticized the Fed’s decision to raise rates last year, has increasingly pressured Mr. Powell to lower borrowing costs more aggressively, telling reporters on Wednesday told reporters that Mr. Powell “raised rates too fast, too furious.”

He repeated his view that if the central bank cuts rates further “you will see a rocket ship.” Earlier in the day, Mr. Trump lamented on Twitter that German government bond yields were negative while the United States continued to pay interest.

“WHERE IS THE FEDERAL RESERVE?” he wrote.

Mr. Trump has also criticized the Fed’s decision to continue reducing the huge volume of government-backed bonds it bought to help prop up the economy after the financial crisis a decade ago. Fed policymakers decided at their July meeting to bring an early end to the process, known as “quantitative tightening.”

That decision was also complicated, based on the minutes. While ending the runoff avoided the “appearance of inconsistency,” one in which rate cuts were loosening monetary conditions but policy on bond holdings was tightening them, ending the reduction early might create the “erroneous impression” that the Fed was trying to slow the economy.

The committee wanted the reduction to be seen as a project on autopilot, happening quietly in the background.

Because the effort ended only slightly earlier than planned, officials concluded that there were “only small differences” between the two options, economically.

Article source: https://www.nytimes.com/2019/08/21/business/economy/federal-reserve-minutes.html?emc=rss&partner=rss

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