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The central bank is likely to lower the benchmark federal funds rate by a quarter-percentage point at its Sept. 17-18 meeting, according to the Wall Street Journal, after policymakers brushed aside the idea of a more aggressive half-point cut.
Policymakers cut rates in July by 25 basis points to a range of 2 percent to 2.25 percent, citing "global developments in the economic outlook as well as muted inflation pressures." At the time, Fed officials did not say whether more cuts were likely.
Since then, however, global economic conditions have continued to deteriorate: Manufacturing contracted in the U.S. and the European Union; two-year Treasury yields surpassed 10-year yields, reversing their normal relationship and indicating higher recession risks; revisions to GDP and employment data in the U.S. suggested the economy isn’t as strong as initially believed; and growing trade tensions between the U.S. and China rattled stock markets.
Trading in interest-rate futures indicated a 93 percent chance of a 25 basis-point cut.
“The economy is in a good place, but not without risk and uncertainty,” New York Fed President John Williams said in a speech Wednesday. “Our role is to navigate a complex and at times ambiguous outlook to keep the economy growing and strong.”
Increased uncertainty, he said, called for “vigilance and flexibility” in monetary policy.
Although St. Louis Fed President James Bullard has stressed the need for a half-point cut, it seems unlikely to garner enough support from other members of the Federal Open Market Committee, whcih sets monetary policy. Many members have already voiced skepticism about the need for a second cut.
“We have seen a big inter-meeting move in bonds. Markets are expecting a lot less inflation and a lot less growth than the Fed is,” Bullard told the Journal in an interview on Wednesday.
Fed Chairman Jerome Powell may also shed light on the monetary body’s plans during a discussion on Friday with the head of the Swiss National Bank in Zurich.
President Trump has repeatedly called on the central bank to lower rates by at least 1 percent, while blaming officials for hurting the economy.
"The only problem we have is Jay Powell and the Fed," Trump tweeted recently. "He’s like a golfer who can’t putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT - but don’t count on him!"