Fed cuts interest rates for first time since financial crisis

The Federal Reserve announced Wednesday that it would cut interest rates for the first time since the 2008 financial crisis in a bid to protect the U.S. economy from a global downturn.

In a statement following a two-day meeting in Washington, the central bank’s Federal Open Markets Committee (FOMC) announced it would cut its baseline interest rate range to 2-2.25 percent, a 0.25 percentage-point cut.

The widely expected cut comes after Fed Chairman Jerome Powell and top bank officials suggested the bank would reduce borrowing costs as insurance against global headwinds and stagnant inflation.{mosads}

Cheaper money will be welcomed by President Trump, who has pressured the Fed into cutting rates for months. The president said Tuesday that he has been “very disappointed” in the Fed and wanted a “large cut.”

Even so, the Fed’s decision to cut rates reflects rising fears about threats to the record stretch of prosperity Trump inherited and is seeking to extend ahead of the 2020 election.

The U.S. economy still boasts a strong labor market, rising wages and booming consumer spending. But data released Friday by the Commerce Department showed growth slowing, hindered by a sharp downturn in business investment and other long-term indicators of economic success.

For months, Powell and his colleagues have expressed concerns with lagging business investment and the potential harm from continued trade tensions, economic uncertainty and looming recessions in China and Europe.

The Fed has also sought to nudge inflation closer to its 2-percent annual target after a year of consistently running beneath that range.

“The performance of the economy has been reasonably good, the positioning of the economy is is as close to our objectives as it’s been in a long time, and the outlook is also good,” Powell told reporters Wednesday.

“But again, the the issue is more the downside risks and the shortfall and inflation and we’re trying to address those,” he added.

The Fed’s rate cut is the first since December 2008, when the bank slashed borrowing costs to near-zero levels in the midst of the financial crisis. The Fed has since raised interest rates nine times starting in 2015 as the economy began to recover, most recently in December 2018.

Two Fed officials objected to the decision to cut rates during a time of relative economic strength. Powell faced questions Wednesday about the need for easing rates while consumer spending remains strong and borrowing costs stay low.

Powell argued that the Fed’s gradual move toward easier financial conditions has helped the economy remain strong, and that a small rate cut was warranted to extend the economic expansion.

The chairman also noted the difficulty of responding to the fallout from Trump’s trade policies, “which do seem to be having a significant effect on financial market conditions and the economy.”

“There isn’t a lot of experience in responding to global trade tensions,” Powell said. “They evolve in a different way, and we have to follow them.”

Updated at 3:38 p.m.

Tags Donald Trump Federal Reserve Interest rates

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