Adds FOMC, Powell comments
US Federal Reserve policymakers cut their target interest rate today by a quarter point, the first reduction of the year, in a bid to bolster faltering employment without reigniting inflation.
The Fed's Federal Open Market Committee (FOMC) on Wednesday cut the federal funds rate to 4-4.25pc, down from 4.25-4.5pc.
The FOMC previously held the target rate unchanged at five meetings this year after three rate cuts late last year brought the rate down by 1 percentage point from a two-decade high.
"Uncertainty about the economic outlook remains elevated," the FOMC said after its meeting. "Downside risks to employment have risen."
Fed chair Jerome Powell said higher tariffs have begun to push up some prices, but their overall effect on economic activity and inflation remain to be seen. "A reasonable base case is that the effects on inflation will be relatively short lived," he said in prepared remarks.
Recent indicators suggest economic growth moderated in the first half of the year, while job gains have slowed and unemployment, while low, has edged up, the committee said. Inflation "remains somewhat elevated".
"Our obligation is to ensure that a one time increase in the price level does not become an ongoing inflation problem," Powell said. "In the near term, risks to inflation are tilted to the upside and risks to employment to the down side — a challenging situation."
Two more cuts projected this year
The Fed, in its economic projections, penciled in two more quarter point rate cuts this year in addition to Wednesday's cut, compared with just two quarter point cuts projected in June.
The Fed's median projections put personal consumption expenditures inflation at 3pc at year end, unchanged from the June forecast, with unemployment climbing to 4.5pc by the end of the year, also unchanged from the June outlook.
The CME's FedWatch tool on Tuesday had given a 96.1pc probability of a quarter-point cut on Wednesday, with a 3.9pc chance of a half-point cut. Probabilities had also showed 70pc odds of three-quarter points worth of cuts by year end.
Rate-cut odds surged after a 1 August employment report showed just 73,000 jobs created in July, with a quarter million jobs cut from revised May and June figures, leaving the three months averaging just 35,000 jobs/month in hiring. That was followed last week by annual revisions halving employment growth in the 12 months through March to just 71,000 jobs/month, down from 147,000 jobs/month previously.
Following the 1 August report, President Donald Trump alleged the jobs data were "manipulated for political reasons," without providing evidence. He immediately fired the Labor department's top statistician and replaced her with an ally from the Heritage Foundation, a conservative think tank.
Trump has also intensified his verbal attacks on Fed chair Jerome Powell, repeating his allegations that the Fed has been too slow to cut rates. Trump's attacks on Powell have raised concerns among central bankers and economists over the independence of the Federal Reserve.
Trump has sought to force the ouster of a voting Fed governor on mortgage fraud allegations, a move that a court of appeals temporarily shot down ahead of this week's policy meeting. Trump also tapped Stephen Miran, chair of the White House Council of Economic Advisers, to serve among the 12 voting members of the FOMC after a recent resignation. Miran was approved by the Senate late Monday.
By Bob Willis
