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Fed makes second straight rate cut, splits on further action

Five officials wanted to keep rates unchanged, while five saw a quarter point as appropriate this year and seven wanted a half point

Craig Torres | Bloomberg 

Federal Reserve Board Chairman Jerome Powell testifies before a Senate Banking Housing and Urban Affairs Committee hearing on the The Semiannual Monetary Policy Report to the Congress, on Capitol Hill in Washington (Photo: Reuters)

Federal Reserve policy makers lowered their main interest rate for a second time this year while splitting over the need for further easing, caught between uncertainty over trade and global growth and a domestic economy that's holding up well.

"Although household spending has been rising at a strong pace, business fixed investment and exports have weakened," the Federal Open Market Committee said in a statement on Wednesday in Washington. Officials maintained their pledge to “act as appropriate to sustain the expansion."

The benchmark rate was lowered by a quarter percentage point to a range of 1.75% to 2% "in light of the implications of global developments for the economic outlook as well as muted inflation pressures," the committee said. The FOMC continued to characterize the labor market as “strong” with “solid” job gains.

Five officials wanted to keep rates unchanged, while five saw a quarter point as appropriate this year and seven wanted a half point.

The Fed Board also took a separate step to calm this week's strains in money and avert harm to the economy, lowering the interest rate on excess reserves to 1.8%. Earlier Wednesday the Fed injected $75 billion of liquidity to ease a crunch, and key rates pulled back from elevated levels.

Global Risk

Chairman Jerome Powell is trying to sustain the expansion despite slowing global growth that's been chilled by uncertainty over U.S. trade policy, fanning fears of recession. Manufacturing has been hit hard, particularly in Germany, which prompted the European Central Bank to ease policy last week.

While the chairman has pointed to global risks, Trump blames the Fed: “Jay Powell & the Fed don’t have a clue’’ he said Sept. 16.

Kansas City Fed chief Esther George and Boston's Eric Rosengren dissented against the reduction, as they did in July, preferring to keep rates unchanged. There was a new dissent by James Bullard of St. Louis, who preferred a half-point cut.

Powell's committee is split between those who don't think cuts are needed because domestic spending is solid and those worried by global weakness and inflation running persistently under their 2% goal.

First Published: Wed, September 18 2019. 23:41 IST