Second modest rate cut arrives amid fears of a possible recession
By Chris Riotta September 18, 2019
The Federal Reserve has cut interest rates for a second time amid fears of a global economic downturn and concerns Donald Trump’s trade wars with China could risk further instability among world markets.
The Fed previously cut the rate to a range of 2 to 2.5 per cent in July, while hinting at further cuts this year. Those cuts came on Wednesday, as the Fed announced a cut of the main target rate to a range of 1.75 to 2 per cent.
Donald Trump, who had repeatedly slammed Federal Reserve Chairman Jerome Powell and demanded the Fed do a sweeping cut to the current rate, tweeted shortly after the announcement: “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”
The second modest cut was announced on Wednesday afternoon, as Mr Powell said at a press conference the Fed would continue using data to assess global economic challenges like the trade confrontation between Washington and Beijing, as well as the recent attacks on a series of oil production sites in Saudi Arabia. If needed, he said the Fed would be willing to make “significant” changes to the current rates in order to preserve US economic standing, but that the labour market “remains strong” and “economic activity has been rising at a moderate rate”.
The Fed would “act as appropriate” in order to maintain the economy’s upward trajectory, it said in a statement announcing the change.
“Job gains have been solid, on average, in recent months, and the unemployment rate has remained low,” the statement continued. “Although household spending has been rising at a strong pace, business fixed investment and exports have weakened.”
The Fed is also monitoring the global slowdown, especially in Europe, and Britain’s effort to leave the European Union. A disruptive Brexit could destabilise not just Europe but the US economy, too, according to experts.
The most serious threat to the expansion is widely seen as Mr Trump’s trade war. The increased import taxes he has imposed on goods from China and Europe — and the counter-tariffs other nations have applied to US exports — have hurt many American companies and paralysed their plans for investment and expansion.
In recent days, the Trump administration and Beijing have acted to de-escalate tensions before a new round of trade talks planned for October in Washington.
Yet most analysts foresee no significant agreement emerging this fall in the conflict, which is fundamentally over Beijing’s aggressive drive to supplant America’s technological dominance.
Balanced against a possible truce in the trade war are events that could undercut the economy, from a strike at General Motors to the attack that has temporarily reduced Saudi Arabia’s oil production. The Trump administration says Iran is behind the attack, raising already high US-Iran tensions.
So far, most economists say the temporary loss of Saudi production won’t end up hurting the US economy, primarily because there remains plenty of global supply.
The Associated Press contributed to this report
Source: The Independent (UK)
