Fed cuts key rate in its first reduction in more than decade
WASHINGTON — The Federal Reserve cut its key interest rate Wednesday for the first time in a decade to try to counter the impact of President Donald Trump's trade wars, stubbornly low inflation and global weakness.
Yet Wall Street seemed disappointed that Chairman Jerome Powell signaled that the Fed might not cut rates much more. Powell didn't rule out a further easing of credit. But he didn't provide the reassurance of a long series of rate cuts that markets were hoping for.
"Powell appeared very reluctant to suggest that additional rate cuts were likely, only doing so when he was asked if this cut was 'one and done,'" said Eric Winograd, senior U.S. economist at Alliance Bernstein. "Even then, he emphasized that if there are additional cuts it would likely be a brief cycle."
The Dow Jones Industrial Average tumbled to finish down 333 points, or 1.2%. The yield on the 10-year Treasury note fell to 2.01% from 2.06% late Tuesday, a sharp drop.
Powell appeared to struggle at a news conference to explain the Fed's thinking. He cast the U.S. economy — the primary focus of the Fed — as fundamentally solid, while pointing repeatedly to the trade conflicts and weakness abroad. Yet he seemed to hunt for the right words to articulate just what the Fed's rate strategy is now and what it's troubled by at a time when the risk of a recession in the United States seems relatively low.
The central bank reduced its benchmark rate — which affects many loans for households and businesses — by a quarter-point to a range of 2% to 2.25%. It's the first rate cut since December 2008 during the depths of the Great Recession, when the Fed slashed its rate to a record low near zero and kept it there until 2015. The economy is far healthier now despite risks to what's become the longest expansion on record.
Trump, who has repeatedly attacked the Fed for failing to cut rates aggressively, expressed irritation with its message Wednesday.
"What the market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, the European Union and other countries around the world," Trump tweeted. "As usual, Powell let us down."
He added, "We are winning any way, but I am certainly not getting much help from the Federal Reserve!"
In addition to its rate cut Wednesday, the Fed also said it would stop shrinking its enormous bond portfolio in August, two months earlier than planned. This step is intended to avoid putting upward pressure on long-term borrowing rates. The Fed had aggressively bought Treasury and mortgage bonds after the financial crisis to drive down long-term rates but had been gradually shrinking its balance sheet as the economy strengthened.
The Fed's action Wednesday was approved 8-2 vote, with two dissents: Esther George, president of the Fed's Kansas City regional bank, and Eric Rosengren, head of the Boston Fed, wanted to keep rates unchanged. It was the first time there have been as many as two dissents since December 2017 and suggested that Powell may face opposition if he seeks further rate cuts this year.
Compared with when the Fed previously cut rates more than a decade ago, the economy is now solid by most measures, if not spectacular. Consumers are spending. Unemployment is close to a half-century low. A recession hardly seems imminent.