September 23, 2019 — Fed Rolls back Interest Rates 25 bps


As expected, the US Fed cut its short-term benchmark interest rate by 25 basis points, the second time in as many months. Rates are now in a range of 1.75 percent to 2 percent.  The door was left open for additional cuts, but a timeframe was not mentioned.

The decision to cut was not unanimous, with voting members split with 7 of 10 voting in favor of lowering the rate, two wanting to hold rates steady and one advocating for a 50 bp reduction. The problem facing the Fed, going forward, is whether they focus on the global economy that may lead to disinflation, or just focus on domestic data?

Officials still have a positive outlook on the US economy, but policy will be decided on a meeting by meeting basis.  The job market remains strong, consumer spending is rising, and the economy is expected to grow at a 2.2% pace in 2019. The decision to cut rates is a cushion against a global slowdown amplified by the ongoing trade war with China.  Trade related risks hard to predict and out of Feds control, so officials are divided on how to respond with changes to monetary policy.  The Fed wants to stave off a recession, but will not act to push growth higher. As far as the direction of future rates, the Fed is divided.  7 of 17 Fed officials are weighing the option of one more cut this year, the remaining 10 are split evenly on stopping now, with others thinking rates shouldn’t have been cut in the first place.