Fed expected to cut interest rates for third time before pressing pause
The Federal Reserve is widely expected to cut interest rates on Wednesday for the third and final time this year in an attempt to insulate an 11-year economic expansion from political uncertainties and slowing global growth.
Most economists expect policymakers, who’ve said little to dispel the notion of additional easing, to lower the benchmark federal funds rate by a modest 25 basis points to a new range between 1.5 percent and 1.75 percent. Traders are pricing in more than a 97 percent chance of a reduction during the two-day meeting, according to the CME’s FedWatch tool.
Although the U.S. central bank probably won’t fully close the door to further action, policymakers will likely put a “speed bump” in their official statement to signal the mid-cycle correction, which began in July, is coming to an end, Vincent Reinhart, chief economist at Mellon, told FOX Business.
“I think Fed officials want it to be three and done,” Reinhart said, pointing to past comments from Fed Chairman Jerome Powell.
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In remarks earlier this year, Powell seemingly raised comparisons to 1995-96 and 1998. In both instances, the U.S. central bank, under the leadership of Alan Greenspan, cut interest rates three times, successfully preserving the economic upswing.
In approving the previous cuts, Powell has cited fallout from the nearly 16-month long U.S.-China trade war, muted inflation and a stormy economic outlook. In the one-month period since the Federal Open Market Committee last met, however, President Trump and his Chinese counterpart, Xi Jinping, have moved closer toward striking a partial trade deal that could be signed as soon as mid-November.
But given the precariousness of the situation — for instance, there’s a possibility the trade agreement implodes like it did in May, when a near-deal crumbled at the last minute — “Jay Powell is in no way shape or form going to say he’s done,” Reinhart said.
If "we’re wrong about the politics, and the trade deal blows up, then the Fed will get back in the game,” he said. “You have to understand the awkward position monetary policymakers are in at this meeting.
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Essentially, Powell has the tough job of threading the needle: He’ll emphasize that economic growth is sluggish; inflation expectations have fallen some, but the Fed does not expect a recession, said David Donabedian, chief investment officer of CIBC Private Wealth Management.
“He will likely indicate that the Fed will remain data-dependent and let the economic numbers be their guide,” Donabedian said. “Powell will continue to hear from others on the FOMC that further rate cuts risk sparking a speculative frenzy in the markets.”
The Fed chairman is slated to speak at 2:30 p.m. ET, a half-hour after the statement is released.