December 15, 2019

Help for the Economy? Despite Grumbling, Trump Has Had Plenty

With other clouds forming over the global economy, including a manufacturing slowdown and possible disruptions from Britain’s planned exit from the European Union this fall, many economists expect the Fed to cut rates further to support growth.

“The Fed has been increasingly responsive this year to trade war threats, bond market expectations, and global growth concerns,” Goldman Sachs economists wrote this week in a research note. They predicted two more rate cuts this fall, but they said that rising inflation would stop the cuts by December.

The Fed does have some ammunition. It has room for eight more quarter-point rate cuts, and it could engage in renewed bond-buying. Fed officials, including Charles Evans, the president of the Federal Reserve Bank of Chicago, have implied that the central bank could cut rates a little more to support the economy should trade concerns lead to an economic pullback.

For now, the Fed is “in a period where we’re looking at the data” and assessing whether additional cuts are warranted, Mr. Evans told reporters on Wednesday.

But the monetary policy runway is shorter than it was ahead of the recession of 2007 to 2009. At that time, the Fed started with interest rates above 5 percent, leaving it with far more room to cut. Lower rates help to prop up growth by making it cheaper for consumers and businesses to borrow and spend.

James Bullard, the president of the Federal Reserve Bank of St. Louis, told reporters at an event in Washington on Tuesday that the Fed was reacting to a one-time increase in trade uncertainty and sought to rebut the idea that it would move to counter every new development.

“I don’t think it’s realistic for the Fed to respond to each threat and counterthreat in a tit-for-tat trade war,” Mr. Bullard said. “You would destabilize monetary policy, and this would create more problems than it would solve.”

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