US Federal Reserve policymakers cut their target interest rate today by a quarter point, the first reduction of the year, saying that "downside risks to employment have risen".
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.
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 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
