Federal Reserve Cuts Interest Rates, First Time Since 2008
This week the Federal Reserve voted to lower its key short-term interest rate by a quarter-point. The widely expected move marked the first time the Fed has cut rates in more than a decade, moving the new target to 2%-2.25%. As USA Today reports, the decision comes even as most economic indicators remain positive.
In a statement released following the meeting, the Fed wrote, “This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2% objective are the most likely outcomes, but uncertainties about this outlook remain.” Later in their statement they added, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2% inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”
Although most saw the cut as a foregone conclusion, that hasn’t absolved the Fed from criticism over the move. Considering how advertently President Trump lobbied for reduction, some are now accusing chairman Jerome Powell of bowing to the pressure. However during a press conference, Powell defended the action, saying, “We are not going to prove we are independent with our monetary policy.” Meanwhile the President still wasn’t too pleased, tweeting, “Experts stated that the Fed should not have tightened, and then waited too long to undo their mistake. James Bullard of St. Louis Fed said they waited too long to correct the mistake that they made last December.”
The markets also seemed to be disappointed as the Dow Jones Industrial Average lost over 1%, falling by more than 300 points at close yesterday. That’s partially because Powell indicated that this wasn’t “the beginning of a lengthy cutting cycle.”
For consumers, the Fed rate cut is both good and bad. Those planning to borrow or who have debt will likely see a small dip in their interest rates. On the other end of the equation, interest rates paid on savings accounts may also be slashed. For example this morning SoFi Money announced it was reducing its APY from 2.25% to 2% in line with the Fed’s move.
It seems that while the Federal Reserve’s announcement was expected to end a period of uncertainty, it actually brought upon more confusion. On top of that on-going concerns regarding China and U.S. trade relations have yet to be resolved, leading to more worries. As a result the jubilance many expected from the markets seems to be on hold as volatility remains.