President Trump says Fed Chair Powell's job is 'safe'

Marco Green
September 20, 2019

Though the United States economy continues growing at a "moderate" rate and the labour market "remains strong", the Fed said in its policy statement that it was cutting rates "in light of the implications of global developments for the economic outlook as well as muted inflation pressures". But the outlook becomes hazier in 2020 as at least two officials expect a rate hike. USA consumers have continued to make big purchases as they enjoy a 50-year low in unemployment and an uptick in wages, but unresolved trade negotiations between the United States and China have dampened business investment and slowed the manufacturing sector. Also, for business investments, rate cut is quite a good news for the USA economy and also for the exports. Benchmark U.S. crude fell gained 11 cents to $58.22 per barrel in electronic trading on the New York Mercantile Exchange.

The median forecasts show the economy is expected to grow a modest 2.2 percent this year, 2 percent next year and 1.9 percent in 2021.

This is where things start to get interesting as markets have to decide for themselves whether or not we will see another rate cut next month.

In its statement on monetary policy, the Japanese bank said "it is becoming necessary to pay closer attention to the possibility that the momentum toward achieving the price stability target will be lost", in reference to the BOJ's ever elusive 2% inflation target.

Three Fed officials dissented from the Fed's decision.

Unemployment is projected to be 3.7 per cent and inflation 1.5 per cent, below the Fed's target level of 2 per cent.

Brazil's central bank also cut its benchmark rate, by 0.5%, and more decisions were expected later in the day from Indonesia, the Bank of England and the central banks in Sweden and Norway.

At a news conference following the announcement, Fed Chair Jerome Powell described the rate as designed "to provide insurance against ongoing risks, " including weak global growth and trade tensions.

The Fed's move reduced its key short-term rate - which influences many consumer and business loans - by an additional quarter-point to a range of 1.75 percent to 2 percent.

The Fed's action was approved on a 7-3 vote, with two officials arguing to keep rates unchanged and 1 arguing for a bigger half-point cut. The Fed injected liquidity into the overnight lending market two days in a row after rates spiked.

A divided US Federal Reserve cut rates by 0.25 percentage points for the second time since the financial crisis.

With that wink to markets of more rate cuts likely this fall, Powell may be poised to waste additional recession fighting bullets.

The U.S. benchmark for crude oil is down 29 cents at $59.05 a barrel after Saudi authorities said 50% of the production cut by the attack on its oil processing plant has been restored.

Currently, Fed fund futures are showing that markets are still quite divided on whether or not we will see another 25 bps rate cut next month.

The president has repeatedly attacked the Fed since mid-2018, demanding lower rates to help boost economic growth.

Most economists have since scaled back their forecasts for further rate cuts this year to one or two beginning Wednesday.

Other reports by Click Lancashire

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