Federal Reserve cuts US interest rates for second time this year, gives mixed signals about next steps

US blue chips extended earlier falls on Wednesday as the Federal Reserve, as expected, cut US interest rates by 25 basis points for the second time this year but gave mixed signals about its next steps on monetary policy.

The Federal Reserve Open Market committee meeting agreed to lower the central bank’s benchmark overnight lending rate to a range of 1.75% to 2.00% on a 7-3 vote, citing ongoing global risks and “weakened” business investment and exports.

In its policy statement, the Fed said that it was cutting rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures” even though the US economy continues growing at a “moderate” rate and the labor market “remains strong”.

READ: Trump slams Fed Chair Powell, calls for negative rates in early morning Twitter rant

Of the three dissident FOMC voters, St. Louis Fed President James Bullard wanted a 50 basis point cut, while Boston Fed President Eric Rosengren and Kansas City Fed President Esther George both did not want a rate cut at all.

The statement also revealed little change in policymakers’ projections for the economy, with growth seen at a slightly higher 2.2% this year and the unemployment rate to be 3.7% through 2020. Inflation is projected to be 1.5% for the year, below the Fed’s 2% target, before rising to 1.9% next year.

The Fed also cut rates by 25 basis points in July, which was the first such move since 2008.

Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 pm ET  to elaborate on the central bank’s policy decision.

In a quick initial comment on the Fed decision, Naeem Aslam, senior market analyst at thinkmarkets.com said: “We have a hawkish rate cut – meaning even though the Fed has cut the interest rate today but there are no clear signals in relation to further rate cuts. In other words, the Fed is no rush to cut the interest rate again.

“The current move by the Fed has made the dollar stronger and pushed the gold price lower. But remember it is all about Trump twitter rant and it is something that traders cannot ignore.”

President Donald Trump had demanded more from Fed officials, whom - in a tweet last week - he insulted as “boneheads” who have put the economic recovery in jeopardy.

Trump’s instant tweet reaction to today’s moves was: “Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision! A terrible communicator!”

Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!

— Donald J. Trump (@realDonaldTrump) September 18, 2019

On Wall Street, the benchmark Dow Jones Industrials Average dropped 180 points, or 0.7% to 26,922 following the Fed news, with the broader S&P 500 index shedding 0.8% and the tech-laden Nasdaq Composite losing 1.1%.

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Story by ProactiveInvestors