WASHINGTON: The Federal Reserve left its key interest rate unchanged Wednesday but signaled that it’s prepared to start cutting rates if needed to protect the US economy from trade conflicts and other threats.
The Fed kept its benchmark rate which influences many consumer and business loans in a range of 2.25 per cent to 2.5pc, where it’s been since December.
It issued a statement saying that because “uncertainties” have increased, it would “act as appropriate to sustain the expansion.”
That language echoed a remark that Chairman Jerome Powell made two weeks ago that analysts interpreted as a signal that rate cuts were on the way.
In its statement Wednesday, the Fed removed a reference to being “patient” about adjusting rates. That suggested that the central bank is now inclined to begin cutting rates for the first time in more than a decade. It remains unclear when that might happen.
The Fed’s decision was approved on a 9-1 vote, with James Bullard, president of the Fed’s St. Louis regional bank, dissenting because he thought the central bank should begin cutting rates now. It marked the first dissent from a Fed decision since Powell became chairman in February last year.
The policymakers are considering cutting rates in part because President Donald Trump’s trade conflicts, especially with China, have become a threat to the economy. The economic expansion that has followed the Great Recession next month will become the longest on record.
A survey of the 17 Fed officials showed that nearly half now expect at least one rate cut this year, with seven projecting two. When they met in March, no officials had forecast a rate cut.
Many Fed watchers have said they think the policymakers want to first see whether a meeting that Trump and President Xi Jinping are to hold late next week produces any breakthrough in the US-China trade war.
But economists say when or even whether the Fed eases credit will depend on a host of factors that are hard to predict. Will Trump’s trade wars be resolved before they inflict real damage on the economy? Will the job market remain resilient even as growth slows? Will inflation finally edge close to the Fed’s target level? Many analysts think the central bank will wait until September at the earliest to announce its first drop in its benchmark short-term rate since 2008 and might not cut again in 2019.
Published in Dawn, June 20th, 2019