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Fed cuts interest rates again by a quarter point, but future drops this year are in doubt

Don Lee, Los Angeles Times on

Published in Business News

WASHINGTON -- The Federal Reserve on Wednesday cut interest rates for a second straight time, but policymakers were divided about the future path of rates.

At their meeting this week, a majority of Fed officials projected no more rate reductions in the foreseeable future, in what is almost certain to be a disappointment to financial markets and President Trump.

The central bank, as expected, announced after its two-day meeting that it was shaving a quarter point from its key interest rate -- to between 1.75% and 2% -- a repeat of its action on July 31.

In making back-to-back rate cuts, the Fed is aiming to shield the American economy against headwinds from the U.S.-China trade war and slowing growth in Europe and Asia -- uncertainties that have weakened business spending and raised the risks of recession.

"They're just trying to make sure we don't fall into recession," said Valentin Haddad, a finance expert at UCLA. "For most individuals, the rate cuts are a good deal," he added, noting that they will hold down mortgage rates and other borrowing costs that the Fed's benchmark rate influences.

But Fed policymakers have been divided on just how much preventive medicine is warranted when the U.S. economy is still expanding at a healthy clip. As in the prior meeting, two out of 10 voting Fed officials dissented to making a rate cut, saying that they preferred to keep rates unchanged.

 

In this meeting, however, there was a third dissent, from a policymaker who wanted to make a bigger, half-point rate cut.

The divide reflects the bind that the Fed and its chairman, Jerome H. Powell, face as they chart a course fraught with economic crosscurrents as well as unusually strong pressure from the president.

The Fed doesn't want to appear to be acceding to or enabling Trump's unpredictable trade moves, but neither can it sit still in the face of turbulence from the trade war as well as weakness in the global economy. At the same time, the Fed's key rate is already low by historical standards, and continuing to lower it could fan stock market and other financial bubbles while leaving the central bank with less ammunition to cut rates when the next economic downturn comes.

After the announcement, Trump continued his unprecedented effort to pressure the Fed chairman to lower rates more aggressively, tweeting: "Jay Powell and the Federal Reserve Fail Again. No 'guts,' no sense, no vision! A terrible communicator!"

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