The Federal Reserve is slashing its benchmark interest rate\non Wednesday for the third time this year to help sustain US economic expansion\nin the face of widespread trade tensions and slowing global growth.<\/p>\n\n\n\n
But Fed policymakers are likely to frustrate anyone hoping\nto clearly indicate what they might do next. Economists said the central bank\nmay prefer to keep its options open. Analysts predicted that the Fed would cut\nits short-term rate – which affects a wide range of consumer and commercial\nloans – by a quarter percentage point from 1.5% to 1.75%. This third cut would\nalmost reflect the four Fed rate hikes last year in response to the\nstrengthened economy.<\/p>\n\n\n\n
That was before the rising global risk led the Fed to change\ncourse and start easing credit. The purpose of reducing interest rates is to\nencourage more borrowing and spending. Jerome Powell said central bank rate\ncuts are meant to be a form of insurance against threats to the economy,\nparticularly from President Donald Trump’s trade war with China and weak growth\nin Europe and Asia. Powell noted similar reductions in 1995 and 1998 as\nprecedents. In both cases, the Fed cut interest rates three times.<\/p>\n\n\n\n
The Fed will also consider the consequences of lower\ninflation expectations. Lower inflation expectations can be self-fulfilling.\nThis is a problem for the Federal Reserve because its preferred inflation gauge\nhas remained below its 2% target for most of the past seven years.<\/p>\n\n\n\n
At the same time, Trump renewed his attacks on the Fed on\nTwitter, for not lowering its benchmark closer to zero. Trump contradicts the\nFed’s actions with central banks in Europe and Japan that have cut rates to\nnegative levels.<\/p>\n\n\n\n
Although Trump has suggested that this puts the United\nStates in an unfavorable position to compete, most economists see negative\ninterest rates as a sign of weakness. Some international tensions have eased\nsince the last Fed meeting in mid-September, which may suggest that other price\ncuts are less necessary. The United States and China reached a temporary trade\ntruce earlier this month and are working together on a tentative agreement that\nTrump and President Xi Jinping could sign in November.<\/p>\n\n\n\n
Another source of international tension is Brexit, which has\nalso eased. The European Union agreed on Tuesday to postpone the deadline for\nBritain’s exit from the European bloc to 31 January from 31 October.<\/p>\n\n\n\n
The US labor market remains strong with the unemployment\nrate at only 3.5%, the lowest in 50 years. A steady increase in employment and\nwages should help boost consumer spending in the coming months while keeping\nthe economy expanding. This could keep the Fed on the sidelines of future\nmeetings.<\/p>\n\n\n\n
The housing market also improved after falling in 2018,\nthanks in part to Fed rate cuts. Mortgage rates have fallen by more than a\npercentage point for an average 30-year fixed rate loan. This has helped\nincrease existing home sales while new home sales have increased.<\/p>\n","protected":false},"excerpt":{"rendered":"
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