All Posts Tagged: fed funds rate
The Federal Open Market Committee (FOMC), responding to weaker economic growth abroad and chronic below-target consumer inflation, cut the federal funds target rate by a quarter percentage point today to between 2.00% and 2.25%, as we expected. The FOMC also decided to end its balance sheet reduction two months early – August 1 ‐ which we had also forecast.
The early end of the balance sheet reduction is consistent with the rate cut action today, signaling the Fed monetary policy tightening cycle may be at an end. The FOMC also left the door open for further interest rate cuts. The statement had new language, saying uncertainties about the outlook remain despite the rate cut action today. There were also two dissents to this decision today, with both Ester George and Eric Rosengren preferring to maintain the target range for the fed funds rate at 2.25% and 2.50%. Both dissents were well telegraphed before the meeting and should not be market moving, though it does show the growing uncertainty about the proper level of the fed funds target rate today and in the future.
The July FOMC statement noted that here in the U.S. the labor market remains strong and economic activity has been rising at a moderate pace. Also, household spending has picked up from earlier in the year, yet growth in business fixed investment has been soft, with inflation running below 2%. Citing the implications of global developments for the economic outlook and muted inflation pressures, the FOMC decided to lower the fed funds rate to 2.00% and 2.25%. The action was taken to support sustained economic expansion and its symmetric 2.00% inflation objective.
Fed Chairman Jerome Powell noted in his after‐meeting press conference that U.S. manufacturing has contracted for two consecutive quarters, and that business fixed investment declined in the second quarter, while global economic activity in the Euro Area and China continues to deteriorate. Given international developments, businesses are telling the Fed that they are becoming more cautious in their spending. The FOMC believes, given these downside risks, a somewhat lower policy rate is warranted to achieve its growth and inflation objectives. Moreover, the FOMC is prepared to do more, if necessary.
For more on this, see my Instant Analysis, delivered on July 31.Read More ›
The Fed might want to reserve some rates cuts for when they are staring a recession right in the face.Read More ›
Hiring faded across the board in May. This is not just a one-off hiccup in the data, but part of a broader more prolonged pattern of labor market softening.Read More ›
For now the Fed is throwing caution to the wind and is pressing ahead with steady rate hikes this year, despite growing downside risks from trade.Read More ›
The Federal Reserve held the fed funds target rate steady at the May FOMC meeting, as was widely expected.Read More ›