The Federal Reserve cut its key interest rate today
for the first time in a decade to try to counter threats ranging from
uncertainties caused by President Donald Trump’s trade wars to chronically low
inflation and a dim global outlook.
The Fed also repeated a pledge to “act as
appropriate to sustain the expansion” — wording that the financial markets
have interpreted as a signal of possible future rate cuts.
Powell has also expressed concern about
undesirably low inflation. In delivering the Fed’s semiannual monetary report
to Congress, he noted that the central bank needs to prevent the economy from
sinking into a low-inflation trap like the one that has bedeviled Japan’s
economy for more than two decades.
In addition to its rate cut, 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.
Another key concern expressed by the Powell Fed
is that Trump’s pursuit of trade conflicts, with his punishing tariffs on
hundreds of billions of dollars in Chinese and European goods, have escalated
uncertainties for American companies.
Federal funds futures implied traders see about
a 76% chance the U.S. central bank would lower key lending rates again at its
Sept. 17-18 policy meeting.
