Fed cuts interest rates for third time, but hits pause on future action
The Federal Reserve cut interest rates by a quarter-percentage point for the third time this year to cushion the economy against the U.S.-China trade dispute and a global growth slowdown, but signaled that it was pressing pause on future easing.
During its two-day meeting, the Federal Open Market Committee voted, in a move widely expected by analysts, to ease the benchmark federal funds rate by 25 basis points to a range between 1.5 percent and 1.75 percent. Eight of the 10 officials voted in favor of lowering rates, with Boston Fed President Eric Rosengren and Kansas City Fed President Esther George dissenting from the decision.
This was the third cut this year, part of a "mid-cycle adjustment" that began in July in order to preserve the 11-year economic expansion. Although the U.S. central bank did not fully close the door to further action, it hinted that it will wait and see before lowering the benchmark federal funds rate again.
The Fed replaced a key phrase that had appeared in its policy statement all summer saying it was committed to "act as appropriate" to sustain the economic expansion. In its place was slightly more hawkish language.
"The committee will continue to monitor the implications of upcoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate," the new statement said.
Fed Chairman Jerome Powell reiterated that stance during a news conference on Wednesday.
"We believe monetary policy is in a good place," he said.
So long as the economic outlook, including the strong labor market and solid consumer spending, remain unchanged, policymakers believe the current stance of policy will remain appropriate, Powell said. He pointed to mitigated risks, like the U.S. and China inching closer toward signing phase one of a trade deal and the reduced risk of a hard Brexit.
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"That has the potential for being an improvement in the risk picture," he said. Before reversing course and returning to interest hikes, Powell said he'd need to see a "really significant" rise in inflation above 2 percent. Stocks rallied to a record high after those comments.
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However, Powell stressed that if developments emerged that cause a material reassessment of the bank's outlook, "we would respond accordingly."
"Policy is not on a preset course," he said.
The Fed said the U.S. economy is growing at a "moderate" pace boosted by a strong labor market, but business investments are weak and "uncertainties" about the outlook remain. It expects growth to cool slightly this year and next to around 2 percent. The decision comes the same day the government reported third-quarter GDP growth of 1.9 percent; though slower than previous quarters, it topped the annualized 1.6 percent that economists surveyed by Refinitiv were expected.
For consumers, lower interest rates — which affect borrowing costs, including auto loan rates and 30-year-fixed mortgage rates — can mean thousands of dollars in savings.