A divided Federal Reserve on Wednesday announced it is cutting interest rates for the first time in more than a decade, as a slowdown in global growth and the fallout from President Donald Trump’s trade wars cloud an otherwise solid U.S. economy.
The Fed lowered rates by a quarter of a percentage point, in a move that meets market expectations but is bound to disappoint Trump, who has relentlessly pressed the central bank to aggressively slash rates as his re-election campaign gets under way.
Fed Chairman Jerome Powell has doggedly insisted that the central bank is not influenced by political interference.Trump, who tweeted on Monday that a small cut is “not enough,” has touted the U.S. economy as the “best ever” but wants the Fed to help continue the record-long expansion and to weaken the dollar to give American exporters a competitive advantage.
The Fed’s rate-setting committee said its move today came “in light of the implications of global developments for the economic outlook as well as muted inflation pressures.” Inflation has persistently remained below the central bank’s 2 percent target, despite unemployment below 4 percent, suggesting there is more room for people to join the labor market and for wages to rise.
Two Fed officials voted against the cut – Kansas City Fed President Esther George and Boston Fed President Eric Rosengren, preferring for the Fed to stand pat. It’s the second time there has been dissent under Powell, reflecting the growing divide among central bank officials in their opinions of how to respond to the complex economic outlook.
The Fed in its post-meeting statement gave no clues as to whether more cuts might be coming.
“As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” it said.
The central bank also announced that this week it will stop shrinking its massive stockpile of Treasury bonds and bundled mortgages, which it bought in the wake of the 2008 financial crisis to boost the economy. That would be two months earlier than it had planned.
Ending that winddown will ensure there is enough cash in the financial system for banks to fund their operations and meet their regulatory requirements for a rainy-day fund.
Trump has regularly criticized the Fed’s balance sheet reduction, also called “quantitative tightening.” He has even suggested the Fed should restart its bond purchases to make the economy take off like a “rocket ship,” but the central bank would be highly unlikely to do so unless the economy were in more serious trouble.
Powell weathered the president’s anger last year when the Fed raised interest rates against Trump’s explicit wishes, something that reportedly led the president to explore whether he could fire the Fed chief. The central bank had been on “pause” this year as it monitored growth domestically and abroad.
But Powell’s larger political challenge might lie ahead, with the Fed now cutting rates — something he will have to convince Congress and the public isn’t just because the president wants him to.
Despite Trump’s regular attacks, Powell has maintained widespread approval on the Hill, as evidenced by warm comments from lawmakers on both sides of the aisle during his two days of testimony earlier this month.
Sen. Pat Toomey (R-Pa.), an influential member of the Banking Committee, told him he was doing an “outstanding job,” while Rep. David Scott (D-Ga.) assured him that Republicans and Democrats have “got your back.” Many thanked him for ignoring short-term political considerations.
Meanwhile, former Fed Chair Janet Yellen helped bolster the non-political case for a rate cut, saying at an event in Colorado over the weekend that she would “be inclined to cut a bit” were she still at the central bank. Powell has repeatedly said that the Fed does not take political considerations into account, a point optically supported by Trump’s frustrations with him.
“The Fed has made all of the wrong moves,” Trump tweeted Monday. “A small rate cut is not enough, but we will win anyway!”
Article originally published on POLITICO Magazine