Fed Likely to Cut Rates a 2nd Time 09/18 06:05
The Federal Reserve looks poised to cut interest rates for a second time
Wednesday to help extend the economic expansion in the face of global weakness,
President Donald Trump's trade war with China and geopolitical risks such as
the attacks on Saudi Arabia's oil facilities.
WASHINGTON (AP) -- The Federal Reserve looks poised to cut interest rates
for a second time Wednesday to help extend the economic expansion in the face
of global weakness, President Donald Trump's trade war with China and
geopolitical risks such as the attacks on Saudi Arabia's oil facilities.
The modest rate cut the Fed announced in July --- its first in more than a
decade --- left its benchmark short-term rate in a range of 2% to 2.25%. It
also raised expectations that it would follow with up to three additional
quarter-point rate cuts this year.
Most economists have since scaled back their forecasts for further rate cuts
this year to one or two beginning Wednesday. A resumption of trade talks and a
less antagonistic tone between Washington and Beijing have supported that view.
So has a belief that oil prices will remain elevated, that inflation might
finally be reaching the Fed's target level and that the U.S. economy remains
Yet no one, perhaps not even the Fed, is sure of how interest rate policy
will unfold in coming months. Too many uncertainties exist, notably the outcome
of the trade war.
Trump has meanwhile kept up a stream of public attacks on the central bank's
policymaking, including referring to Powell as an "enemy" and the Fed's
policymakers as "boneheads." Despite a still-solid job market and brisk
spending by consumers, the president has insisted that the Fed slash its
benchmark rate aggressively --- even to below zero, as the European Central
Bank has done --- in part to weaken the U.S. dollar and make American exports
No one expects the Fed to go anywhere near that far. Chairman Jerome Powell
has said that the policymakers remain focused on sustaining the expansion and
keeping prices stable without regard to any outside pressures.
At a news conference Powell will hold Wednesday, he will likely be asked
about the risks facing the economy, including the attacks on Saudi oil
production facilities, which sent oil prices surging and could raise inflation
The Fed is also monitoring the global slowdown, especially in Europe, and
Britain's effort to leave the European Union. A disruptive Brexit could
destabilize not just Europe but the U.S. economy, too
U.S. inflation, which has long been dormant, has begun to show signs that it
is reaching the Fed's 2 percent target and might remain there. If the Fed's
policymakers conclude that inflation will sustain a faster pace, it might give
them pause about cutting rates much further.
The most serious threat to the expansion is widely seen as 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 U.S. exports --- have
hurt many American companies and paralyzed their plans for investment and
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 U.S.-Iran tensions.
So far, most economists say the temporary loss of Saudi production won't end
up hurting the U.S. economy, primarily because there remains plenty of global
"Higher oil prices are not the big economic deal that they have been in
decades past," said Mark Zandi, chief economist at Moody's Analytics.
On Wednesday, in addition to announcing its decision on rates, the Fed's
policymakers will update their forecasts for economic growth, unemployment,
inflation and interest rates over the next three years before Powell's news
The case for a rate cut is by no means overwhelming. The job market is
essentially healthy, and wages are rising. Last week, the government reported
that retail sales rose in August. An index of consumer sentiment produced by
the University of Michigan has rebounded.
Still, the course of the trade war, along with other unknowns like the
outcome of Brexit, will likely be the biggest factor in the Fed's
"They have to react to policies that can change with the speed of a tweet,"
said Diane Swonk, chief economist at accounting firm Grant Thornton.