Federal Reserve Cuts Interest Rates for Third Time in 2019

Unemployment is historically low, the labor market is expanding and consumer spending is strong. But job gains are cooling off, wage growth has shown early signs of weakening and consumer sentiment is slipping.

The Fed has failed to sustainably hit its 2 percent inflation target since formally adopting it in 2012, and various measures of consumer and market inflation expectations have recently drifted lower. That creates a risk that price increases will become mired permanently below the central bank’s goal, leaving it with less room to cut interest rates — which include inflation — in a downturn.

Overall economic growth is also slowing from a stronger pace in 2018 and early 2019, a Commerce Department report showed earlier Wednesday, though it remains close to the Fed’s estimate of its longer-run potential. That is consistent with what the policymakers expected: They have long believed that the economy would slow down once the effects of Mr. Trump’s tax cuts and higher government spending had played out.

Still, stock prices are soaring, and the housing market has stabilized as mortgage rates have fallen. While it is not obvious how or even whether the trade war will end, Mr. Trump has said that negotiators are making progress toward a first-phase deal with China.

Those hopeful signs could help the economy find a more solid footing. Some officials are also wary of stoking asset price bubbles and unhealthy risk-taking by lowering interest rates too much and too early.

Both Esther George, the president of the Federal Reserve Bank of Kansas City, and Eric Rosengren, the president of the Federal Reserve Bank of Boston, voted against Wednesday’s rate cut. They have both previously dissented against the rate cuts, saying that they would prefer to see a more pronounced deterioration in economic data before lowering rates.

James Bullard, the president of the Federal Reserve Bank of St. Louis, had dissented in favor of a larger rate cut in September, but voted in favor of October’s quarter-point adjustment.

Article source: https://www.nytimes.com/2019/10/30/business/economy/federal-reserve-interest-rates.html?emc=rss&partner=rss