Federal Reserve Cuts Interest Rate By 1/4 Point

As fully telegraphed and as fully expected but masking deep division, the Federal Reserve cut its policy rate by an incremental 25 basis points to a range of 1.75 percent to 2.00 percent with an implied midpoint of 1.875 percent. The vote was seven to three and was lopsided. James Bullard of St. Louis dissented wanting a 50 basis point cut with Esther George of Kansas City and Eric Rosengren of Boston both dissenting once again for no cut. There were expectations that quarterly FOMC forecasts, also released today, would pencil in one more rate cut this year but the median shows no change.

The economic assessment is little changed with the labor market described as strong and economic activity as moderate and with household spending upgraded from "picking up" in the last two statements to "rising at a strong pace". But business spending is downgraded, from "soft" to having "weakened" with the word "exports" now inserted and also described as having weakened.

The range of these assessments in the debate isn't known but the conclusions drawn by the policy makers have a striking range, underscored by the FOMC forecasts. These show seven of the 17 total members expecting one more 1/4 point cut before year end, with five seeing no further cuts and 5 wanting a rate hike back above 2.0 percent. Economic forecasts are little changed with GDP marked up 1 tenth to 2.2 percent for this year and with the unemployment rate moved up 1 tenth to 3.7 percent. Year-end forecasts for core inflation are unchanged, at 1.8 percent this year (running at 1.6 percent in August) and 1.9 percent for the end of next year.

Jerome Powell has his hands full, trying to find consensus within the Federal Reserve at the same time being sharply pressured by President Trump for further rate cuts. Global concerns are underscored by the inclusion of the reference to exports where weakness or recovery will more and more be the central factor on the Fed's future assessments and rate actions. In a technical move to keep the rate on target, the Fed cut its IOER (interest on excess reserves) by 30 basis points to 1.80 percent and lowered the discount rate by 25 basis points to 2.50 percent.