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Home / Business / The Fed cuts interest rates for the third time when the US economy slows down

The Fed cuts interest rates for the third time when the US economy slows down



The federal interest rate, which affects the cost of mortgage, credit card and other loans, will now hover between 1.5% and 1.75%.

Federal Reserve Chairman Jerome Powell strongly suggested at a press conference Wednesday that the Fed would keep interest rates stable for the foreseeable future. Powell said the current level "is likely to remain appropriate" given the Fed's economic outlook for moderate economic growth, a strong job market and inflation growing at around 2%.

"If that changes, the Fed will respond accordingly," Powell said.

Rate cuts during an economic expansion are not common, but they are also not unique. The Fed did in the same way that former Fed Chairman Alan Greenspan called "insurance cuts" in 1

995 and 1998. The Fed quickly declined to consider increases following these moves.

Still, despite the fact that there is little room left to further cut interest rates if the economy suddenly starts to shrink, Powell said he does not think the Fed is about to start raising rates anytime soon .

"We need to see a really significant increase in inflation … before we would consider raising interest rates to meet inflationary concerns," he said.

Two voting members of the political committee – Kansas City Fed President Esther George and Boston Fed President Eric Rosengren – dissented against the decision to cut interest rates by a quarter of a percentage point.

Politicians painted a mostly rosy picture of the US economy in their statement, pointing to "solid" labor gains and household spending increased at a "strong pace", but also noted that business investment and exports continued to "remain weak."

Powell noted that a potential "Stage One" trade agreement between the US and China and signs that the UK may be able to orchestrate a smooth exit from the EU could mean that the risk is less expensive and could increase business confidence.

"There is plenty of risk left, but I must say that the risk seems to have fallen," he said.

Earlier in the day, Chile canceled the forthcoming APEC Summit in November where President Donald Trump is expected to sign a trade agreement with Chinese leader Xi Jinping.

Fed officials will meet next six weeks. They left some room for further interest rate cuts by omitting certain languages ​​in the statement, but left some room for discrepancy by pointing to the remaining "uncertainty" about the country's economic outlook.

"The Committee will continue to monitor the implications of incoming information for the economic outlook as it considers the appropriate path for the target area of ​​the federal fund rate," the statement states.

The Fed's leader has been under pressure throughout Trump to continue to squeeze the economy by cutting sharply interest rates, which are already at historically low levels, as he tries to bolster his chances of winning next year's elections in 2020. [19659008] However, data released earlier on Wednesday showed that the economy may slow down, making Powell's job even more difficult as he seeks to keep the country's longest economic expansion going.

In the third quarter, the economy grew 1.9% according to preliminary data released by the Department of Commerce. It was better than Wall Street had predicted, but still did not fall under the Trump administration's forecast to hit 3% annual economic growth. It was also the second back-to-back reading during this year's Q1 report of 3.1%.

While the recent data shows that the economy is not quite off track yet, consumers are now spending less than before just as the industry continues to shrink and business investment spending continues to decline.

The US stock market moved higher Wednesday after the cut.

"The Fed better put a log or two on the fire because the economy is not burning as bright as the Trump administration had hoped when they came into office and with a choice of just over a year away, the economy needs more stimulus if it comes to grow at a moderate pace, ”wrote Chris Rupkey, chief financial officer at MUFG.


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