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FOMC cuts rates, ends balance sheet adjustments
The Federal Open Market Committee (FOMC), as expected, cut interest rates by 25 basis points Wednesday at the conclusion of its two-day monetary-policy setting meeting. The committee also announced that it would cease to adjust the size of its balance sheet in August – two months earlier than previously indicated.
"The committee had a tough task in attempting to synthesize the disparate views from within its own ranks, while at the same time mollifying markets that were hoping for more," said NAFCU's Chief Economist and Vice President of Research Curt Long in response to the Fed's actions. "The hope is that an earlier end to the reduction of its balance sheet will provide to markets assurances that the Fed stands ready to ease, ideally without actually having to follow through.
"But with sluggish domestic growth and no end in sight to the risks from trade policies, weakness abroad, and sub-target inflation, it seems likely that the committee will face more tough decisions in the near future. But given the pushback from the hawkish voices in the room, NAFCU expects another rate cut will have to wait until December or January 2020, at the earliest," Long added.
Despite low inflation and solid jobs reports, the committee cited global developments for the economic outlook and muted inflation pressures as causes for the cut. The federal funds target rate will now be set to a range of 2 to 2.25 percent.
"This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain," the Federal Reserve said in a statement.
More on the meeting's outcomes can be found in NAFCU's FOMC Macro Data Flash report.
The FOMC will next meet Sept. 17-18; its tentative meeting schedule for 2020 can be viewed here.