August 5, 2019 — Fed Lowers Interest Rate by 25 Basis Points


As expected, Fed Chair Powell rolled back interest rates by 25 bps to a range of 2.0-2.25 percent last week.  It was the first reduction in rates since 2008.  Eight of the ten voting members of the FOMC agreed with Powell, with two members wanting to keep rates unchanged. The decision was made to cushion the economy from a global slowdown and continuing trade tensions.

The drop in rates is seen as a ‘mid-cycle adjustment’, not the start of a series of rate cuts. Officials are not ruling out further action; but will only act if they see real weakness in the economy which is not evident today.  They will monitor incoming information and act appropriately to sustain the expansion. The FOMC announced they will end the runoff of the $3.8 trillion asset portfolio, two months earlier than expected.

In support the economy, Friday’s job report announced the addition of 164,000 jobs in July.  The unemployment rate remained at 3.7 percent at lowest levels since 1969. Wage growth ticked up 3.2 percent from a year earlier. The total labor force stands at 163.4 million, a record high.

Fed-futures traders are pricing in 85 percent chance of another cut in September, and a 70 percent probability of at least two more cuts in the final three Fed meetings of 2019.