The US Federal Reserve cut its funds rate by 25 basis points overnight, on a split vote.
The new rate range is 1.75-2%, down from the 2-2.25% range set on 31 July.
7 open market committee members voted for the 25-point cut, one wanted a 50-point cut and 2 wanted no change.
The committee release on its decision was notable for its repetition of a few phrases and the absence of any exception of a way forward, much like masticating on the spot.
In the committee’s statement, chair Jerome Powell mentioned “global developments for the economic outlook”, but didn’t elaborate on which developments in particular he was referring to, or the implications.
He also mentioned that information the central bank had received since July “indicates that the labour market remains strong” and that there are still no inflation expectations. That in itself amounts to a forecast that the central bank rate cut will remain impotent as a change agent.
His mention that the Fed “will act as appropriate to sustain the expansion” was a clear warning that it won’t be reducing its treasury holdings any time soon. And, as nobody else is taking that sort of action either, the US debt mountain will continue to rise.
The Fed statement:
“Information received since the Federal open market committee met in July indicates that the labour market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low.
“Although household spending has been rising at a strong pace, business fixed investment & exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food & energy are running below 2%. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.
“Consistent with its statutory mandate, the committee seeks to foster maximum employment & price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the committee decided to lower the target range for the federal funds rate to 1¾-2%.
“This action supports the committee’s view that sustained expansion of economic activity, strong labour market conditions and inflation near the committee’s symmetric 2% objective are the most likely outcomes, but uncertainties about this outlook remain.
“As the committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labour market & inflation near its symmetric 2% objective.
“In determining the timing & size of future adjustments to the target range for the federal funds rate, the committee will assess realised & expected economic conditions relative to its maximum employment objective & its symmetric 2% inflation objective. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures & inflation expectations, and readings on financial & international developments.”
8 August 2019: Cashrate cut by a third, gold & NZX indices up, $NZ down
1 August 2019: Fed cuts funds rate, rolls over treasuries
2 July 2019: Australia’s Reserve Bank cuts rate again
Attribution: Federal Reserve.