Fed Cuts Interest Rates, Third Time This Year

Written By
Julija A.
December 04,2019

The Federal Reserve has cut interest rates for the third time this year. Fed officials announced after the October 30 meeting that the federal funds rate has been cut once more, to 1.5% to 1.75%.

According to Federal Reserve chair Jerome Powell, these will be the last interest rate cuts in the foreseeable future as the Fed steps in to bolster the frailing economy. The announced cuts, which affect the cost of mortgages, credit cards, and other borrowing, come as a response to an economic slowdown caused by the ongoing trade dispute with China and weak global growth figures.

Powell said the current level will remain appropriate for the future period - a statement that’s in line with the Fed’s economic outlook, which suggests inflation stands at a targeted rate of 2%, the labor market carries on strong, and moderate economic growth is ongoing.

The Fed’s general outlook on the economy sounds quite reassuring, though some say it is not realistic. Commerce Department data released October 30 suggests that the US economy grew at an annualized rate of 1.9% in the third quarter, below the Trump administration’s 3% goal and forecast.

While the results aren’t alarming, the fresh data confirms that consumers are spending less, investment spending by businesses is facing a decline, and the manufacturing sector continues to contract.

Powell said that the Fed will act again if conditions change. But the latest cut leaves little room for maneuvering.

The Fed’s policy-setting committee is not without dissent. While most members agreed on the rate cut, two voting members - Kansas City Fed president Esther George and Boston Fed president Eric Rosengren - continued to oppose the latest cuts, just as they opposed the previous round of cuts in July.

As expected, the US stock market moved higher immediately after the cuts.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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