Federal Reserve cuts rates again but signals a pause

Fed Chair Jerome Powell

The US Federal Reserve on Wednesday cut interest rates for the third time this year to help sustain US growth.

However, the Fed also signaled there will be no further rate cuts ahead unless the US economy takes a turn for the worse.

“We believe that monetary policy is in a good place,” said Fed Chair Jerome Powell after the US central bank announced its decision to cut its key overnight lending rate by a quarter of a percentage point to a target range of between 1.50% and 1.75%. 

“We took this step to help keep the economy strong in the face of global developments and to provide some insurance against ongoing risks,” said Powell.

“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.” 

Kerstin Braun, President of Stenn Group, an international provider of cross-border trade finance, reacted to the Fed’s decision, saying: “With this move, the Fed is squandering what few moves it has in case of a real economic crisis.

“The stock market is peaking, consumers are still spending, and the tariff war could be resolved.

“This isn’t the normal context for lowering interest rates. The Fed is trying to stave off any sign of a recession.

“But this action alone is not going to put US growth on track.

“We need a return of economic confidence and the long-term business investment it brings. Monetary policy can’t do this alone.

“The US needs to end uncertainties about global trade while also implementing fiscal policies that foster investment in infrastructure and innovation.

“This era of persistent low interest rates can be a drag on economies, as we’ve seen in Japan and are now seeing in Europe.

“Banks have no incentive to loan money, making credit tighter for companies that want to grow.”

Hinesh Patel, portfolio manager at Quilter Investors, said: “Following this rate cut the Federal Reserve has signalled a pause, awaiting the development of future macroeconomic data before deciding on further interest rate policy adjustments.

“In our view, the Fed will struggle to meet their dual-objective of full-employment and inflation-target over the medium-term, meaning further rate cuts must remain on the table, despite what Chairman Powell would rather do.

“Underlying consumer surveys do not paint a rosier outlook either and as seen in today’s GDP release the price index is moving lower.

“As concerns persist for the global economy, the Fed must make sure it doesn’t make the same mistakes and act too late on interest rates and be willing to provide the stimulus required to keep this cycle going.”