Fed may announce second rate cut today

The Federal Reserve is widely expected to announce a second interest rate cut today to support the U.S. economy amid slowdown concerns.

Martin Crutsinger had the news for the AP:

The Federal Reserve looks poised to cut interest rates for a second time Wednesday to help extend the economic expansion in the face of global weakness, President Donald Trump’s trade war with China and geopolitical risks such as the attacks on Saudi Arabia’s oil facilities.

The modest rate cut the Fed announced in July — its first in more than a decade — left its benchmark short-term rate in a range of 2% to 2.25%. It also raised expectations that it would follow with up to three additional quarter-point rate cuts this year.

Most economists have since scaled back their forecasts for further rate cuts this year to one or two beginning Wednesday. A resumption of trade talks and a less antagonistic tone between Washington and Beijing have supported that view.

So has a belief that oil prices will remain elevated, that inflation might finally be reaching the Fed’s target level and that the U.S. economy remains sturdy.

Yet no one, perhaps not even the Fed, is sure of how interest rate policy will unfold in coming months. Too many uncertainties exist, notably the outcome of the trade war.

CNBC’s Patti Domm noted the move was unlikely to shut critics of Fed Chair Jerome Powell up:

The Fed is expected to cut interest rates for the second time in a decade Wednesday, but Fed Chairman Jerome Powell is unlikely to deliver the message markets want to hear on plans for future rate cuts.

“He’ll underwhelm everyone and not overwhelm anyone,” said Diane Swonk, chief economist at Grant Thornton. She expects a cut of 25 basis point, taking the fed funds target rate range to 1.75 to 2.0%, following the last quarter point cut on July 31.

At the Fed’s last meeting, Powell rocked markets, sending stocks lower and bond yields higher when he described the rate cut as a “mid-cycle adjustment,” meaning it was not part of a larger rate cutting cycle.

“He won’t promise anything more. He’ll keep his cards close to his chest. He’ll be an artful dodger again,” said Swonk.

The Fed’s approach may make some market pros unhappy, and it will certainly disappoint President Donald Trump who said the Fed were boneheads and called for zero or even negative rates.

Economists said it’s unlikely the Fed forecast will include more than one more rate cut in its outlook for this year, presented on a chart, known as the “dot plot.” Many in the markets are looking for two more cuts this year.

CBS provided the context:

When the central bank in July lowered rates for the first time since the 2008 financial crisis, Fed Chairman Jerome Powell cited global trade tensions and slowing growth overseas. But he also described the 0.25 percentage point cut in the federal funds rate, to a range of 2% to 2.25%, as more of an adjustment in policy rather than the start of a longer-term shift toward easier money. 

Since then, the U.S. manufacturing sector has continued to lose speed and companies’ capital spending has dipped, fueling angst and volatility in financial markets and leaving American consumers to prop up growth. Those signals have also spurred more criticism of the Fed from President Donald Trump, who in a break from historical precedent has badgered Mr. Powell to cut rates more steeply. 

Against that backdrop, many experts predict the Fed will cut short-term rates by another quarter percentage point. “Fed communication since the July meeting suggests unchanged motives for further easing, including a slowdown in the industrial sector on the heels of slower growth momentum abroad, increased uncertainty from trade and other geopolitical tensions, and persistent below-target inflation,” Barclays analysts said in a note.