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Fed reduces rates but may not cut again this year

AP Economics Writer

WASHINGTON (AP) — The Federal Reserve cut its benchmark interest rate Wednesday for a second time this year but suggested it may not cut rates any further this year.

The Fed’s decision will reduce its benchmark rate — which influences many consumer and business loans — by an additional quarter-point to a range of 1.75% to 2%.

The action was approved 7-3, with two officials preferring to keep rates unchanged and one arguing for a bigger half-point cut. It was the most Fed dissents in three years.

The divisions on the policy committee underscored the difficulties confronting Chairman Jerome Powell in guiding the Fed at a time of high uncertainty in the U.S. economy.

Stock prices tumbled after the Fed issued its statement, a result of disappointment that it had declined to suggest that more rate cuts are likely this year. The Dow Jones Industrial Average was down 150 points an hour later.

The economic expansion appears durable in its 11th year of growth, having a still-solid job market and steady consumer spending. But the Fed is trying to combat threats including uncertainties caused by President Donald Trump’s trade war with China, slower global growth and a slump in American manufacturing. The Fed notes in a policy statement that “business fixed investment and exports have weakened.”

The Fed’s modest rate cut irritated Trump, who has attacked the central bank and insisted that it slash rates more aggressively. The president immediately signaled his discontent:

“Jay Powell and the Federal Reserve Fail Again,” Trump tweeted. “No ‘guts,’ no sense, no vision! A terrible communicator!”

Revised economic and interest-rate forecasts issued Wednesday by the Fed suggested that only seven of 17 officials foresee at least one additional rate cut this year. And at least two Fed officials expect a rate hike next year.

None of the policymakers foresees rates falling below 1.5% in 2020 — a sign that the turbulence from a global slowdown and Trump’s escalation of the trade war is viewed as manageable.

The median forecasts suggest the economy is expected to grow a modest 2.2% this year, 2% next year and 1.9% in 2021. Those forecasts are well below the Trump administration’s projection that the president’s policies will accelerate growth to 3% annually or better. But they also suggest that policymakers do not envision a recession.

Unemployment is projected to be 3.7% and inflation 1.5%, below the Fed’s target level of 2%

Both the resumption of trade talks between the Trump administration and Beijing and a less antagonistic tone between the two countries have supported the view that additional rate cuts might not be necessary. So has a belief that oil prices will remain elevated, that inflation might finally be reaching the Fed’s target level and that there are increasing signs that the U.S. economy remains sturdy.

The job market looks solid, wages are rising, consumers are still spending and even sluggish sectors such as manufacturing and construction have shown signs of rebounding.

Yet no one, perhaps not even the Fed, is sure of how interest rate policy will unfold in coming months. Too many uncertainties exist, notably the outcome of Trump’s trade war.

Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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