The Fed Lowers Interest Rates, But Not Enough For Trump
The U.S. Federal Reserve lowered federal interest rates 25 basis points to 2% to 2.5% on Wednesday, in the first downward adjustment of interest rates since the Great Recession. In a press conference, Powell said the move is "not the beginning of a long series of rate cuts — [but] I didn’t say it’s just one.”
In explaining why the Fed is cutting rates even as it says the economy is strong, Powell stressed the importance of continuing what has been the longest growth cycle in the U.S. economy's history. The rate cuts are meant to combat factors wider in scope than previous iterations of the Fed had been concerned with, The Wall Street Journal reports.
Interest rates around the world remain even lower than in the U.S., with many countries' central banks maintaining a negative rate. Contributing to the uncertainty in the global economy is President Donald Trump's aggressive stance in trade negotiations with China, Mexico and several European nations, Powell said.
Despite the consistent growth that led to eight interest rate hikes from 2015 to last year, inflation has not kept at the 2% pace that the Fed has targeted for years. Slow wage growth has kept consumer buying power low and prevented businesses from raising prices meaningfully, The New York Times reports.
As unemployment has stayed low in recent years, that wage growth has finally begun to take hold, especially for lower-wage jobs, Powell said. Keeping the growth cycle going is a way to make sure "the strong job market reaches more of those left behind."
Though two local Federal Reserve governors dissented against the decision to lower rates, Powell did not go far enough for Trump's liking. Responding to Powell's press conference on Twitter, Trump continued to express displeasure with the man he nominated to lead the Fed in late 2017.
....As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place - no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!— Donald J. Trump (@realDonaldTrump) July 31, 2019
Though Powell made no promises, many analysts now predict a second rate cut of 25 basis points before the year is out, the WSJ and the Times report.