Federal Reserve Under Pressure as Interest Rate Cuts

Federal Reserve Under Pressure as Interest Rate Cuts

Minutes of their July 30-31 meeting released Wednesday in Washington laid out the reasons for the quarter percentage-point cut, highlighting risks to the outlook even though the USA economy, for now, is performing well.

Fed officials expect USA growth to slow in the second half of the year, but despite the risks to the outlook, they "continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the committee's symmetric two percent objective as the most likely outcomes".

The Fed building in Washington.

Markets have "entered a holding pattern" ahead of Powell's afternoon speech at an annual gathering in Jackson Hole, Wyoming, Jeffrey Halley of Oanda said in a report.

Trump also demanded the Fed lower rates again. Since that announcement, Trump has said he would postpone about half of those tariffs until December 15 to avoid hurting American consumers during the holiday shopping season.

"The Economy is doing really well".


The minutes did not indicate any consensus on the pace of future cuts. While Fed board governors are permanent voters, only five of the 12 regional reserve bank presidents have a vote at each meeting.

The "continued weakness in global economic growth and ongoing trade tensions had the potential to slow United States economic activity", the Fed cautioned.

"Indeed, the last time the Fed cut rates by that much was in late 2008, lowering them all the way to zero at the very depths of the Great Financial Crisis".

However, Fed policymakers agreed at their 30-31 July meeting that they did not want to give the impression they were planning more rate cuts.

On Tuesday, the S&P 500 index snapped a three-day winning streak and fell 0.8% to 2,900.51. That created a limit to Mr. Powell's ability to communicate clearly about why the Fed was cutting.

Yields on longer-dated U.S. Treasury securities rose after the minutes were published.


On Twitter on Thursday, Trump lamented the relatively high level of US rates compared with some global competitors, noting that yields on 30-year bonds in Germany are negative.

Trump said the USA economy "is the strongest in the world, by far nothing even close and a lot of good things are happening".

The dollar strengthened against the safe-have yen and Swiss franc.

For his part, Trump on Wednesday continued to pressure the Federal Reserve and the central bank's chairman to lower interest rates, saying the central bank hiked rates "too fast" and has let the nation down as a result.

To be sure, it is easier for Fed officials to agree on a policy change when it is clear the economy is deteriorating rapidly, which wasn't the case in July.

"Participants generally judged that the risks associated with trade uncertainty would remain a persistent headwind for the outlook, with a number of participants reporting that their business contacts were making decisions based on their view that uncertainties around trade were not likely to dissipate anytime soon", the minutes said. "You've got those who are anxious about the economic outlook and who want to continue to preemptively cut interest rates to provide insurance against that potential risk of a recession", Girard said.


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