September 19, 2019 04:53:22

The US Federal Reserve has cut its benchmark interest rate by a quarter of a percentage point for the second time this year, while saying it is prepared to continue doing what it deems necessary to sustain the US economic expansion.

Key points:

  • The Fed’s decision reduces its benchmark rate to a range of 1.75 per cent to 2 per cent
  • US President Donald Trump, who wanted more aggressive cuts, has criticised the move
  • It also cut the rate in July, which was the first such move since 2008

The Fed’s move, which was widely expected, will reduce its benchmark rate to a range of 1.75 per cent to 2 per cent. The Fed’s key rate influences many consumer and business loans.

The US economy appears durable in its 11th year of growth, with a still-solid job market and steady consumer spending.

But the Fed is trying to combat threats including uncertainties caused by President Donald Trump’s trade war with China, slower global growth and a slump in American manufacturing. The Fed noted in its statement that “business fixed investment and exports have weakened”.

Still, the Fed’s move has displeased Mr Trump, who has previously attacked the Fed and insisted that it slash rates more aggressively.

Writing on Twitter, Mr Trump said the move was a “fail”, and that Fed Chair Jerome Powell and other officials had “no guts”.

The Fed’s action was approved on a seven to three vote, with two officials arguing to keep rates unchanged, and one arguing for a bigger half-point cut. It was the largest number of Fed dissents in three years.

There was little change in policymakers’ projections for the economy, with growth seen at a slightly higher 2.2 per cent this year and the unemployment rate to be 3.7 per cent through 2020.

Inflation is projected to be 1.5 per cent for the year, below the Fed’s 2 per cent target, before rising to 1.9 per cent next year.

Mr Powell is scheduled to hold a press conference shortly to elaborate on the policy decision.

The rate cut fell short of the more aggressive reduction in borrowing costs that Mr Trump had demanded from Fed officials, whom he has insulted as “boneheads” who have put the economic recovery in jeopardy.

The Fed also cut rates in July, the first such move since 2008.

Fed officials said their aim was to balance the potential need for lower rates against the risk that cheaper money may cause households and businesses to borrow too much, as happened in the run-up to the financial crisis more than a decade ago.









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