Interest Rates Cut by Federal Reserve, Though A Pause Is Coming

Federal Open Market Committee reduces the benchmark funds rate by 25 basis points to uphold its mission to ‘act as appropriate to sustain the expansion’.

  • The cuts lowered benchmark funds rates to 1.5% to 1.75%.
  • The likelihood of another cut in December’s meeting is only about 25%, according to traders.

Just as expected, the Federal Reserve approved a quarter-point interest rate cut today, which is the third cut that the authority has performed this year. The financial market was anticipating this vote, according to reports from CNBC, during which time the Federal Open Market Committee lowered the benchmark funds rate to 1.5% to 1.75%, which was a difference of 25 points.

This rate outlines the fees charged by banks for overnight lending, but it is also directly connected to the majority of revolving consumer debt. The cut is being called a “midcycle adjustment” by Fed. Chairman Jerome Powell, as the economy expands. With the decrease, it seems that language was also introduced to establish a higher bar for the future.

A key clause was removed by the FOMC that was recently in post-meeting statements dating back to June, which indicated that the entity would “act as appropriate to sustain the expansion.” Powell had used the phrase during the rate cut in July, and it has remained in the official language since then.

Now, a new statement has replaced it,

“The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

In a news conference, Powell aimed to be clearer, commenting that the officials of central banks “see the current stance of monetary policy as likely to remain appropriate.”

Participants in the market have been observing tentatively, waiting to see if the chairman may signal the end of the policy accommodation. With the new language, it appears that the data dependence is increasing, rather than keeping a focus on lowered adjusted rates. During this meeting, market pricing had remained at approximately 100% for a cut, while traders are only predicting a 25% likelihood of a move in the meeting in December.

In recent speeches, federal officials have continually highlighted the strength of the US economy, driven by consumer spending. However, they have also expressed that global weakness, Brexit-related uncertainties, and the tariff war with China has been a threat to that strength. While the labor market reportedly “remains strong,” nearly every other activity benchmark has remained the same.

The government today is reporting 1.9% GDP growth, though the original estimate by Wall Street was 1.6%. Through recent months, despite 109,000 citizens remaining unemployed, the rate is still at a 50-year low at only 3.5%. Stock market averages are also recording new highs.

Even with these cuts, President Donald Trump has pushed to prevent these rate cuts, hoping to go back to the quantitative easing program employed by the central bank at the time of the financial crisis.

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