Carlos Barria/Reuters
- The Federal Reserve is expected to slash borrowing costs Wednesday for the first time since the depths of the global financial crisis.
- It would mark a watershed moment for policymakers as they take steps to sustain the longest expansion on record.
- Most expect the central bank to cut by a quarter percentage point at the end of a two-day policy meeting, though some see the possibility of a larger adjustment.
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The Federal Reserve is expected to slash borrowing costs Wednesday for the first time since the depths of the global financial crisis, marking a watershed moment for policymakers as they take steps to sustain the longest expansion on record.
Most expect the central bank to cut by a quarter percentage point at the end of a two-day policy meeting, though some see the possibility of a larger adjustment. The move would bring the range for the benchmark interest rate to between 2% and 2.25%.
The likely cut would come at an unusual time, with unemployment levels at historic lows and financial markets near record highs. The policy-setting Federal Open Market Committee could be split on the decision as they weigh slower but still solid growth against a flurry of strains, including global trade tensions and below-target inflation readings.
"Given the sharp differences of opinion among committee members on the efficacy of a rate cut now as opposed to reserving as much monetary firepower as possible for when the current business cycle ends, there will likely be at least one dissenting voice," said Joseph Brusuelas, the chief economist at RSM, an international consulting firm.
They economy grew at a slightly faster-than-expected pace of 2.1% this spring, according to an initial estimate out Friday, but gross domestic product was still a full percentage point below the previous quarter. The report showed a slowdown in sectors tied heavily to trade, which policymakers have outlined as a key concern in recent months.
In June, Chairman Jerome Powell said the central bank was ready to step in to juice growth if a series of tariff disputes between President Donald Trump and major trading partners worsened. The central bank warned tariffs.
The US said China reneged on key trade commitments in a draft agreement earlier this year, leading Trump to raise tariffs on its products and threaten further escalation. High-level talks between the two sides have since restarted, but hope for a quick deal has dimmed since then.
"China took a new and somewhat irrational stance in early May which makes it impossible for President Trump to cut a deal he can sell domestically in an election year," said Derek Scissors, a China scholar at the conservative-leaning American Enterprise Institute. "The Fed’s role is overstated – it can’t change the Chinese view and the president wants a rate cut regardless of whether there’s a deal."
Trump has exerted an unprecedented degree of pressure on the central bank while in office, publicly calling for rate cuts and attempting to place political allies in top policymaking roles. But with a desire to juice the economy ahead of the 2020 elections, the president has suggested the expected adjustment won’t be enough.
"I would like to see a large cut, and I’d like to see immediately the quantitative tightening stopped," Trump told reporters Tuesday, referring to the reversal of a crisis-era program that injected trillions into the economy. "It should be stopped. For them to have done quantitative tightening and also higher interest rates simultaneously, I think, was a big mistake."
The announcement is scheduled for 2 p.m., with Federal Reserve Chairman Jerome Powell set to give a press conference shortly after.
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Source: Business Insider – gheeb@businessinsider.com (Gina Heeb)