BUSINESS

The Fed cut rates for the first time since 2008

Jul 31, 2019, 3:25 PM
fed rates cut...
The Federal Reserve on Wednesday lowered interest rates for the first time since the Great Recession in 2008 to help stave off the possibility of an economic downturn. Photo: Drew Angerer/Getty Images

(CNN) — The Federal Reserve on Wednesday lowered interest rates for the first time since the Great Recession in 2008 to help stave off the possibility of an economic downturn.

Policymakers led by Fed Chairman Jerome Powell voted 8-2 in favor of a small cut in the federal funds rate, and recommitted to their promise to “act as appropriate” to sustain the country’s longest economic expansion in history.

Interest rates, which affect the cost of borrowing for credit cards and mortgages, are now set to hover between 2% and 2.25%.

The rate cut follows months of pressure from President Donald Trump, who has broken with his predecessors’ practice of walling off the central bank from politics.

The central bank is hoping a rate cut will be the necessary injection to keep the US economy healthy, especially because it has limited ammunition to respond to a downturn with historically low interest rates.

The Fed also announced plans to end the reduction of its $3.8 trillion asset portfolio, effective August 1, two months earlier than previously expected. The runoff was set to end after September.

A few hours after the Fed chair’s news conference, Trump tweeted: “As usual, Powell let us down,” while giving a nod to the central bank’s decision to end quantitative tightening. “We are winning anyway, but I am certainly not getting much help from the Federal Reserve!”

Not all, however, were in agreement with the Fed’s decision to ease policy.

Both Boston Fed President Eric Rosengren and Kansas City Fed President Ester George dissented on the move, signaling policymakers extensively debated whether this month’s meeting was the right time to cut rates amid signs of a healthy economy.

The Fed’s rate cut and plans to end quantitative tightening follows months of pressure from President Donald Trump, who has repeatedly rebuked his pick to lead the central bank for not doing enough to boost the US economy. On Monday, Trump criticized the Fed in a series of tweets for making “all the wrong moves,” adding “a small rate cut is not enough.”

But Powell said pressure from Trump did not factor in the Fed’s decision.

“We are not going to prove we are independent with our monetary policy,” he said at a press conference Wednesday.

Policymakers in their statement said they would “continue to monitor” incoming data and would act as needed to support the economy. Investors initially cheered that news, assuming it meant more rate cuts were coming. Wall Street had been pricing in another rate cut later this year

But the Dow at one point fell 478 points after Powell hinted that the rate cut could be a one-off.

“We are thinking of it as a mid-cycle adjustment to policy,” Powell said. “I’m contrasting it with the beginning of a lengthy cutting cycle.”

The Dow then pared some of its losses after Powell clarified that he meant the Fed could cut rates again soon, but the cycle of cuts wouldn’t last for a long period of time.

“What I said was it’s not the beginning of a long series of rate cuts,” Powell said. “We’ll be taking a somewhat more accommodative stance over time.”

Nationwide senior economist Ben Ayers said future policy moves by the Fed would depend upon how the economy and trade talks progress in the coming months.

“Should trade negotiations turn positive and economic data, especially inflation, firm in coming months, July’s move could be a one-and-done easing,” said Ayers in a note. “Still, given the slowing trajectory for the economy and precedence from previous mid-expansion easing cycles, a further rate cut (or two) by year-end may occur.

Since the start of the year, the Fed has pursued a more agile approach in setting policy to contend with greater uncertainty. Trade uncertainty has dominated concerns by policymakers, who have repeatedly noted the impact such longstanding disputes between the United States and China have had on global growth and investment.

Powell, and others, have argued central banks should get ahead of a downturn after seeing any signs of weakness to get more bang for their buck in such a low-interest rate environment.

Still, the Fed will need to justify the decision to plow ahead with a rate cut given some prevailing strength in the economy. Since their last meeting in June, the job gains, retail sales and economic growth have been stronger than expected.

Investors will also be looking for more clues about potential cuts in the future when Powell briefs reporters at his now-regular press conference.

The-CNN-Wire
™ & © 2019 Cable News Network, Inc., a Time Warner Company. All rights reserved.

Today’s Top Stories

Business

In this undated photo released by Toyota Motor Corp., its bZ4X vehicle is shown during an online pr...
YURI KAGEYAMA AP Business Writer

Toyota recalls electric car for faulty wheel that may detach

The "bz" in the recalled model's name, as well as others in the works, stands for a "beyond zero" series, including sport-utility vehicles of all sizes, pickup trucks and sportscars, according to Toyota.
7 days ago
A model wears a creation as part of the Giorgio Armani men's Spring Summer 2023 collection presente...
COLLEEN BARRY

Gucci unveils ‘HaHaHa’ collaboration with Harry Styles

Gucci has teamed up with Harry Styles for a between-season collection that infuses tailoring with adolescent joy. The collection is titled “HaHaHa.”
11 days ago
A now hiring sign in an Arby's window.; the Utah employment summary for May showed a slight slowing...
Amie Schaeffer

May’s Utah employment report showing signs of inflation impact

The employment rate in Utah remains steady but may be showing signs of inflation's impact, according to the state's May employment summary.
14 days ago
Attic fire in Cowabunga Bay building....
Mark Jones

Cowabunga Bay Water Park set to reopen Thursday after fire last weekend

Following a building fire last weekend, Draper's Cowabunga Bay Water Park is scheduled to reopen to the public on Thursday.
16 days ago
Utah airbnb rentals rising interest rates affecting millennial home buyers...
Dan Bammes

One realtor sees “signs of hope” in Utah housing market

With home listings up and home sales down, one Utah realtor is encouraged about the future of the Utah housing market, leading to what she calls "signs of hope."
17 days ago
Some executives are keeping their employees home in a way to save money and possibly help lower the...
Heather Kelly

Working from home could help bring down gas prices

Some businesses are having employees return to working remotely as a way to have money on gas, and possibly help lower gas prices.
21 days ago

Sponsored Articles

Tax Harassment...
Jordan Wilcox

The best strategies for dealing with IRS tax harassment | You have options!

Learn how to deal with IRS tax harassment. This guide will teach you how to stop IRS phone calls and letters, and how to handle an IRS audit.
spend a day at Bear Lake...
Bear Lake Convention and Visitors Bureau

You’ll love spending the day at Bear Lake | How to spend a day at Bear Lake

Bear Lake is a place that needs to be experienced. Spend a day at Bear Lake.
Curb Appeal...
Price's Guaranteed Doors

How to have the best of both worlds for your house | Home security and curb appeal

Protect your home and improve its curb appeal with the latest security solutions like beautiful garage doors and increased security systems.
Prescription opioids can be disposed of during National Prescription Take Back Day...
Know Your Script

Prescription opioid misuse | How to protect your family from the opioid epidemic

Studies have shown that prescription opioid misuse has increased since COVID-19. So what do you need to know about these opioids?
Follow @ikeyospe...

Tax Tuesday: The Most Common Mistakes People Make When Filing Their Taxes

Fortunately, for most average earners, they will not end up owing overpayments received for the Child Tax Credit in 2021.
Follow @ikeyospe...

Tax Tuesday: How will last year’s child tax credits affect you?

Fortunately, for most average earners, they will not end up owing overpayments received for the Child Tax Credit in 2021.
The Fed cut rates for the first time since 2008