US Fed cuts interest rates as expected, leaves door open for more

United States central bank reduces borrowing costs slightly, in face of global economic slowdown.

The US Federal Reserve is concerned by the risks of a global economic downturn and increasing uncertainty [Manuel Balce Ceneta/AP]
The US Federal Reserve is concerned by the risks of a global economic downturn and increasing uncertainty [Manuel Balce Ceneta/AP]

The United States Federal Reserve cut interest rates on Wednesday for the first time since 2008, citing concerns about the global economy and muted US inflation. It also signaled a readiness to lower borrowing costs further if needed.

Financial markets had widely expected the quarter-percentage-point rate cut, which lowered the Fed’s benchmark overnight lending rate to its target range: two percent to 2.25 percent.

In a statement at the end of its latest two-day policy meeting, the Fed said it had decided to cut rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures”.

The Fed said it will “continue to monitor” how incoming information will affect the economy, adding that it “will act as appropriate to sustain” a record-long US economic expansion.

The decision drew dissents from Boston Fed President Eric Rosengren and Kansas City Fed President Esther George, who argued for leaving rates unchanged.

Both have raised doubts about a rate cut in the face of the current expansion, a US unemployment rate that is near a 50-year low, and robust household spending.

US President Donald Trump is likely to be disappointed that the Fed did not deliver the large rate cut he had demanded. Trump has repeatedly attacked the central bank and Fed Chairman Jerome Powell for not doing enough to help his administration’s efforts to boost economic growth.

Powell and other Fed officials in recent weeks have walked a middle ground, flagging risks such as low inflation, a weakening world economy and continued uncertainty on the global trade front. Even so, they have repeated the view that the US is fundamentally in a good spot.

The Fed said in its statement that it continued to regard the US labour market as “strong” and added that household spending had “picked up”. But it noted that business spending was “soft”.

The rate cut should help return inflation to its two-percent target, said the statement. Sustained expansion of economic activity and a stronger labour market are also the most likely outcomes, it noted.

Underscoring its decision to ease policy across the board, the Fed also said it would stop shrinking its massive holdings of bonds starting on August 1 – a move that comes two months ahead of schedule.

Source : Reuters

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