Fed's Open Market Committee Cuts Fund Rate As Expected

Apart from a cut in the federal funds rate, not that much has really changed in the Federal Reserve's latest statement. The statement back in June described the jobs market as strong as does today's statement and economic growth once again as moderate. "Picking up" is repeated exactly when describing household spending in contrast to business spending which is once again soft.

What is different is a direct reference to "global developments for the economic outlook". Concern over trade tensions and rising tariffs was the context, cited by Jerome Powell in his press conference, behind the bias shift in June's meeting from neutral to accommodative as manifested in today's report. The assessment of inflation is unchanged in July though "muted inflation" is cited along with the global reference as the reason for the rate cut.

Accommodative also includes an immediate stop to quantitative tightening, cutting the program two months short. The Fed will now be fully reinvesting maturing Treasuries and mortgage-backed securities on its balance sheet, not lowering that amount which will provide greater demand for the bond market.

For future policy the statement is elusive, saying policy makers will monitor incoming data and will "act appropriately" to keep the labor market strong and inflation near its 2 percent target. There was a dissent in today's meeting as there was in June. Then St. Louis Fed President James Bullard voted for an immediate rate cut while today Boston's Eric Rosengren voted for no cut.