US Federal Reserve Chair Jerome Powell has been signalling a rate cut for some time, and after today's FOMC meeting a cut duly came: a 25 basis point reduction, taking the target range for Fed funds to 2-2.25 percent. Considering the consistency of Powell's recent hints, it's perhaps a small surprise that the vote was not unanimous: two Governors would have preferred to keep rates unchanged.
It's unlikely that today's move will be sufficient to mollify Donald Trump, whose anti-Fed rhetoric has grown more ludicrous with every passing week. It's hard to imagine that the modest tightening the Fed has undertaken in the past year, which has left the rate close to zero in real terms, has produced a "deadweight" on the US economy, but that's how Trump affects to see it.
Given the tone of much of the FOMC statement, the decision to cut rates seems more than slightly odd. The Fed notes that job gains are solid, the unemployment rate is low, and consumer spending is growing more rapidly. The sole risk to growth that the statement identifies is the global economic outlook, and here one of the principal sources of uncertainty is, of course, the global tariff wars initiated by Trump. In effect the Fed is cutting rates in order to offset the risks posed by ill-advised US trade policies, a fact that must surely have led to some queasiness at the FOMC.
Looking ahead, the Fed's base case calls for sustained economic expansion, a strong labour market and inflation stable near the 2 percent target. However, it remains ready to act as appropriate to keep growth and inflation on track. Bizarre as it seems, the main source of the uncertainties that could derail the US economy and compel the Fed to cut again is just down the street, in the Oval Office of the White House. If Trump wants the Fed to keep cutting rates, he just has to continue making stupid policy decisions. Looks like a safe bet.
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