The Fed is prepared to reduce rates for the first time in a decade
WASHINGTON (AP) - The Federal reservation is about to reduce its key interest rate on Wednesday to counter what it sees as threats to the US economy, ranging from uncertainties caused by President Donald Trump's trade conflicts to inflation below the persistent level to a perspective Dark global
It will be the first Fed rate cut since December 2008 in the depths of the Great Recession.
Most analysts expect the Fed to announce a quarter-point cut in its short-term benchmark rate. That rate, which affects many consumer and commercial loans, is now in a range of 2.25% to 2.5% after nine quarter-point rate increases from December 2015 to December 2018.
Under the presidency of Jerome Powell, the Fed faced pressures to facilitate credit since it increased its key rate in December for the fourth time in 2018 and hinted that rates are likely to increase this year.
Stock prices sank later and provoked criticism, especially from Trump, that the Federal Reserve was tightening credit too much and threatening the economy.
Then, the Fed made an abrupt policy change at the beginning of the year, suggesting that it would remain patient about any change in rates and implying that rate increases were off the table.
Now, despite the fact that the Fed has clearly pointed out that rate cuts are coming, a message that has brought the stock market together, Trump has stepped up its public attacks, accusing that the central bank and Powell, its carefully elected president, are managing the economy badly.
On Tuesday, the president said the Dow Jones Industrial Average would be 10,000 points higher and that the pace of economic growth would be double what it is now if the Federal Reserve had not raised rates last year.
I'd like to see a big cut in rates, Trump said Tuesday.
Trade talks between the United States and China remain stagnant, with Trump's tariffs on $ 250 billion in Chinese products still in force. At the same time, although an agreement seems far away, fears that Trump can significantly escalate the conflict by taxing an additional $ 300 billion in Chinese products have also diminished.
After a sharp slowdown in the hiring of the United States in May, employment growth has recovered. The pace of economic growth weakened in the quarter from April to June, but remained strong enough to calm fears that a recession could be near.
In all, reassuring economic news helped boost share prices to record levels in the past two months.
However, Powell and other Fed officials have tended to emphasize a series of uncertainties facing the economy, a sign that they are prepared to reduce rates on Wednesday by at least a quarter of a point.
The idea is that a rate cut now, and possibly one or more additional cuts to follow, could help inoculate the economy against a possible recession. The reduction of the short-term key rate of the Federal Reserve aims to encourage loans and expenses and boost the economy.
But skeptics wonder if the rate cuts at this time would really do much to boost an economy whose borrowing rates are already low.
Some even worry that the central bank will assume an unnecessary risk: by reducing rates now, the Fed disarms itself from the munitions it would need in case the economy slips into a recession. Some also suggest that by lowering rates more and more, the Fed could be helping to feed dangerous bubbles into stocks or other risky assets.
Some analysts foresee two or even three rate reductions this year while the Fed tries to counter global threats that run the risk of spreading to the United States, not only prolonged business divisions, but also a potentially frustrated exit from Britain from the Union. European, a weaker China and risk of recession in Europe.
Other economists suggest that if the economy stabilizes and avoids such threats, the Fed may be content to remain on the sidelines for the rest of the year. This story has not been edited by The Times of India and is automatically generated from a syndicated feed to which we subscribe.