WASHINGTON:
The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday and indicated it will steadily lower borrowing costs for the rest of this year, as policymakers responded to concerns about weakness in the job market in a move that won support from most of President Donald Trump’s central bank appointees.
Only new Governor Stephen Miran, who joined the Fed on Tuesday and is on leave as the head of the White House’s Council of Economic Advisers, dissented in favour of a half-percentage-point cut.
The rate cut, along with projections showing two more quarter-percentage-point reductions are anticipated at the remaining two policy meetings this year, indicate Fed officials have begun to downplay the risk that the administration’s voluble trade policies will stoke persistent inflation, and are now more concerned about weakening growth and the likelihood of rising unemployment. The cut, the first move by the policy-setting Federal Open Market Committee since December, lowered the policy rate to the 4.00%-4.25% range.
New economic projections showed policymakers at the median still see inflation ending this year at 3%, well above the central bank’s 2% target, a projection unchanged from the last set of forecasts in June. The projection for unemployment was also unchanged at 4.5% and the one for economic growth slightly higher at 1.6% versus 1.4%.
World stocks edged lower in choppy trading while the US Treasury yields fell across the board. Benchmark S&P 500 and the Nasdaq were trading slightly lower while the Dow rose after the Fed’s announcement. The Dow Jones Industrial Average rose 0.56% to 46,014.88, the S&P 500 fell 0.31% to 6,585.98 and the Nasdaq Composite dropped 0.75% to 22,162.03.
MSCI’s gauge of stocks across the globe slid 0.14% to 975.41, retreating from its record highs.
The benchmark US 10-year note yield fell 1.5 basis points to 4.009%. The 2-year note yield, which typically moves in step with interest rate expectations for the Fed, fell 1.5 basis points to 3.495%.
The US dollar fell against against a basket of major trading partners’ currencies while gold prices soared to a record high.
Compared to the stagflationary risks contained in the last set of projections, with the Fed slowing its rate cuts to head off inflation, the new projections show an emerging sense among officials that they can head off any rise in unemployment with a faster pace of rate reductions, while inflation eases slowly next year.
Fed officials have gradually warmed to the idea that Trump’s tariffs would have only a temporary impact on inflation, and the latest forecasts are consistent with that view.
