After a three-year campaign of boosting the Fed’s benchmark rate that ended in December, the Federal Open Market Committee made its first cut since 2008. Here are the stories that led up to the decision. Last updated July 31, 2019
Following a two-day meeting of the Federal Open Market Committee, the Fed released a statement saying that economic activity has been “rising at a solid rate” and that it expects continued growth. The committee said it will maintain its target range for the federal funds rate at 2.25-2.5%.
At the conclusion of its March meeting, the Federal Reserve announced it would not be raising the federal funds rate. In fact, the Fed signaled it was done with the idea of rate hikes for the rest of 2019.The Federal Open Market Committee’s statement indicated that the Fed was taking a cautious tone with the rates as it monitors the rate of inflation and other global economic conditions and developments.
Beyond simply cutting interest rates, Trump also wanted the Fed to bring back its policy of quantitative easing, wherein the Fed buys billions in mortgage-backed securities and other bonds to increase liquidity in the market and keep interest rates low.
President Donald Trump took to Twitter on May 14 to air his thoughts on the trade war with China, where he hinted at monetary actions from the Federal Reserve. Trump explained that China would most likely manipulate its interest rates to keep its economy going during the trade war, but said that if the U.S. did the same, it would be “game over.”
Traders in futures markets signaled a 22.5% probability of a rate cut at the FOMC's June 18-19 meeting and an 86% chance of a cut at or before its July 30-31 meeting, according to CME Group.
While the labor market is expected to remain robust and inflation will likely stay within bounds, “uncertainties about this outlook have increased,’’ the Fed said in the statement. “In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
Federal Reserve Chairman Jerome Powell told Congress on July 10 that he wouldn’t leave his post as the nation’s top central banker even if President Donald Trump fired him.
Traders in futures markets signaled a 77.5% probability of a quarter percentage point cut at next week’s Federal Reserve meeting and a 22.5% chance of a half percentage point cut, according to the CME’s FedWatch tool.
By July 29, the world’s most powerful central bank was poised to cut its benchmark rate for the first time since 2008. The reasons couldn’t be more different. Back then, the economy was in freefall after a spike in foreclosures deflated the value of bonds backed by home loans. This time, more than a decade later, Federal Reserve policymakers aren’t dealing with a financial crisis. They’re trying to keep the nation’s longest expansion from petering out.
The Federal Reserve cut its benchmark rate by a quarter percentage point on Wednesday at the end of a two-day meeting in Washington, D.C., in a bid to keep the longest economic expansion in U.S. history from petering out. It was the first reduction since the financial crisis more than a decade ago. Central bankers also said they would halt the unwinding of its $3.8 trillion of Treasuries and mortgage-backed securities in August, earlier than expected.