–A Quarter-Point Cut and Then Maybe Another One – But Not a ‘Long’ Series
By Denny Gulino
WASHINGTON (MaceNews) – Federal Reserve Chairman Jerome Powell Wednesday said the day’s first rate cut in a decade is not necessarily the opening gun in an extended series but also not necessarily the only one, depending on whether trade uncertainties intensify or other problems deepen,
In his post Federal Open Market Committee meeting news conference, Powell seemed to reach for explanations for the rate cut. Although some analysts blamed the afternoon market setback for stocks on.the president’s remarks about China, the dive accelerated about ten minutes into Powell’s remarks when he said he didn’t see the rate cut as beginning of a “long” series.
He said the FOMC will be “monitoring the evolution of trade uncertainty, global growth, low inflation and we’ll also of course be watching the performance of the U.S. economy,”Powell said.
He said he completely understood the arguments of the two committee dissenters, regional bank presidents Esther George and Eric Rosengren, and that he thought they were not reasons sufficient to justify not cutting.
So was this an insurance cut, not a data dependent cut? “With trade tensions which do seem to be having a significant effect on financial market conditions and on the economy, they evolve in a different way and we have to follow them,” Powell went on.
What does a quarter-point cut accomplish? “I don’t think asking about a quarter point is the right question,” Powell answered. “I think you have to look back over the course of a year and see the committee moving away from rate increases to neutral posture to now a rate cut.”
Meanwhile, “You see an economy that’s actually performing pretty well,” he said, “… actually a little better than our forecast.” He said that’s “monetary policy working.”
Yet some reporters in attendance at the Fed’s press conference site used the word “confusion” in their questions, either implicitly or explicitly. Somewhat clarifying the FOMC’s intentions, Powell repeated later in the press conference, “It’s not the beginning of a long series of rate cuts,” he said, emphasizing “long.”
He said there’s a “global business cycle” happening in which growth and manufacturing and business investment slows. “We think this is the right move for today,” he said.
Other times the Fed has cut rates in the middle of a cycle it has turned around and raised rates again, so it can’t be said that the Fed will necessarily “have less ammo” available if there is another downturn, he said.
Powell repeated that President Trump’s criticisms of the central bank have not been a factor in the rate-cut decision. “We never take into account political considerations. There’s no place in our discussions for that. We also don’t conduct monetary policy in order to prove our independence,” only to pursue the twin mandates.
“We are going to be data dependent,” Powell said. “We’re going to be, as we always are, doing what we need to do to support the economic expansion.”
The decision to cut off balance sheet normalization two months earlier than expected, in August, “was really just a matter of consistency and simplicity, nothing more to it than that,” he said.