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Fed Cuts Rates but Hits Pause Button on Future Moves

James Hyerczyk

The U.S. Federal Reserve on Wednesday cut interest rates for the third time this year, as largely expected. The move was designed to give the economy an added boost as it navigates a global trade war without sliding into a recession. Central bank policymakers also signaled its rate-cut cycle might be at a pause.

Changes to the Previous Statement

In dropping its policy rate by 25 basis points to a target range of between 1.50% and 1.75%, the Federal Reserve dropped a previous reference in its policy statement that it “will act as appropriate” to sustain the economic expansion-language that was considered a sign for future rate cuts.

Instead, policymakers said it will “monitor the implications of incoming information for the economic outlook as it assesses the appropriate path” of its target interest rate, a less decisive phrase.

Other Key Points

The Fed’s description of the U.S. economy on Wednesday remained largely unchanged, with labor markets said to be “strong,” and economic activity “rising at a moderate rate.”

In reiterating remarks in its previous statement, the Fed said it took the action to reduce borrowing costs “in light of the implications of global developments for the economic outlook as well as muted inflation pressures.”

The Fed also said business investment and exports remained “weak.”

Limited Response by Investors

Since the rate cut was widely anticipated by the financial markets, and economists had predicted the central bank would hit the pause button in December, traders showed little reaction to the news. Furthermore, major market participants also showed they were leaning in the same direction as expectations for additional cuts after October have dropped significantly in recent weeks.

There Were Dissenters

Kansas City Fed President Ester George and Boston Fed President Eric Rosengren dissented from the decision. This wasn’t a surprise since they have opposed all three Fed rate cuts this year as unnecessary.

This article was originally posted on FX Empire

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