The Fed cuts rates again; Powell says likely not again this year
A divided U.S. Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, which was expected to, but wasn’t a certain thing. The Fed also announced it will restart limited purchases of Treasury securities after money markets showed signs that liquidity was becoming scarce, which is a condition the Fed itself has pledged to avoid.
It was a 10-2 decision to lower the policy rate to a range of 3.75%-4.00%, meaning 2 members opposed the decision. One of those in opposition to the decision preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting, while the other preferred no change to the target range for the federal funds rate at this meeting. This was the third time since 1990, according to data from the St. Louis Fed, that policymakers had dissented in different policy directions, which represents a sign of the split opinion at the Fed about where the economy is headed.
The decision seems to have primarily been taken as a way for the Fed to temper any further decline in the job market which the policymakers worry may be losing steam. More broadly, the Fed elaborates in its short post-meeting Press Release the following:
Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.
The Fed made several references to the lack of official data during a federal government shutdown, and Powell went so far as to state in a post-conference that “we’re going to collect every scrap of data we can find, evaluate it and think carefully about it. And that’s our job”.
Powell in reference to the government shutdown and what it means for the Fed moving forward also emphasized: “If you asked me could it affect… the December meeting, I’m not saying it’s going to, but yeah, you could imagine that. You know, what do you do if you’re driving in the fog? You slow down.“.
He mentioned that there are ‘strongly differing views’ within Fed about a December rate cut. The likelihood of such a decision is unlikely.
As the Committee emphasized in their Press Release, their assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.