Divided Fed Cuts Rates Again           09/19 06:03

   A sharply divided Federal Reserve cut its benchmark interest rate Wednesday 
for a second time this year but declined to signal that further rate cuts are 
likely this year.

   WASHINGTON (AP) -- A sharply divided Federal Reserve cut its benchmark 
interest rate Wednesday for a second time this year but declined to signal that 
further rate cuts are likely this year.

   The Fed's move reduced its key short-term rate --- which influences many 
consumer and business loans --- by an additional quarter-point to a range of 
1.75% to 2%.

   The action was approved 7-3, with two officials preferring to keep rates 
unchanged and one arguing for a bigger half-point cut. The divisions on the 
policy committee underscored the challenges for Chairman Jerome Powell in 
guiding the Fed at a time of high economic uncertainty.

   The Fed did leave the door open to additional rate cuts --- if, as Powell 
suggested at a news conference, the economy weakens. For now, he suggested, the 
economic expansion appears durable in its 11th year, with a still-solid job 
market and steady consumer spending.

   At the same time, 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 investment and exports have weakened.

   Financial markets closed mostly higher after the Fed's afternoon 
announcement although the diverging opinions on the Fed left some investors 
uncertain how many more rate cuts the Fed will deliver. The Dow Jones 
Industrial Average after being down most of the day finished up 36.28 points, 
or 0.1%, to 27,147.08.

   At his news conference, Powell acknowledged that Fed officials are sharply 
divided about the wisest course for interest rates, especially given 
uncertainties, like trade conflicts, whose outcomes are out of the Fed's 
control.

   "This is a time of difficult judgments and disparate perspectives," the 
chairman said.

   In any case, many business leaders are skeptical that the Fed's slight rate 
cuts will deliver much economic benefit.

   Wednesday's rate cut "makes virtually no difference to the U.S. economy in 
and of itself," said Jamie Dimon, CEO of JPMorgan Chase, who suggested, as many 
corporate leaders have, that Trump's trade war remains an overarching threat.

   "I don't think cutting rates will offset trade, personally," said Dimon, 
head of the largest U.S. bank.

   Among Powell's challenges is that the trade war's uncertainties are likely 
affecting the nation's economic data, making it hard for the Fed to set an 
interest-rate policy for the months ahead.

   "It doesn't make sense to commit to a path of policy today when monetary 
policy is now responding to future developments in the trade policy," said Bill 
Adams, a senior economist at PNC Financial Services.

   Wednesday's modest rate cut irritated Trump, who has attacked the central 
bank and insisted that it slash rates more aggressively. The president 
immediately signaled his discontent:

   "Jay Powell and the Federal Reserve Fail Again," Trump tweeted. "No 'guts,' 
no sense, no vision!  A terrible communicator!"

   Asked about Trump's latest personal taunt, Powell declined, as he has 
before, to respond directly, while adding that the Fed's long-standing 
independence from political pressures "has served the public well."

   Updated economic and interest rate forecasts issued Wednesday by the Fed 
show that only seven of 17 officials foresee at least one additional rate cut 
this year. And at least two Fed officials expect a rate hike next year.

   None of the policymakers foresee rates falling below 1.5% in 2020 --- a sign 
that the turbulence from a global slowdown and Trump's escalation of the trade 
war is viewed as manageable.

   The median forecasts show the economy is expected to grow a modest 2.2% this 
year, 2% next year and 1.9% in 2021. Those forecasts are well below the Trump 
administration's projection that the president's policies will accelerate 
growth to 3% annually or better. But they also suggest that policymakers do not 
envision a recession.

   Unemployment is projected to be 3.7% and inflation 1.5%, below the Fed's 
target level of 2%

   A resumption of trade talks between the Trump administration and Beijing and 
a less antagonistic tone between the two sides have supported the view that 
additional rate cuts might not be necessary. So has a belief that oil prices 
will remain elevated, that inflation might finally be reaching the Fed's target 
level and that there are increasing signs that the U.S. economy remains sturdy.

   The job market looks solid, wages are rising, consumers are still spending 
and even such sluggish sectors as manufacturing and construction have shown 
signs of rebounding.

   Yet no one, perhaps not even the Fed, is sure of how interest rate policy 
will unfold in coming months. Too many uncertainties exist, notably the outcome 
of Trump's trade war.

   Trump has meantime kept up a stream of public attacks on the central bank's 
policymaking, including referring to Powell as an "enemy" and the Fed's 
policymakers as "boneheads." Even though the economy looks resilient, the 
president has insisted that the Fed slash its benchmark rate more deeply --- 
even to below zero, as the European Central Bank has done --- part to weaken 
the U.S. dollar and make American exports more competitive.

   The Fed is monitoring the global slowdown, especially in Europe, and 
Britain's effort to leave the European Union. A disruptive Brexit could 
destabilize not just Europe but the U.S. economy, too

   U.S. inflation, which has long been dormant, has begun to show signs that it 
is reaching the Fed's 2 percent target and might remain there. If the Fed's 
policymakers conclude that inflation will sustain a faster pace, it might give 
them pause about cutting rates much further.

   The most serious threat to the expansion is widely seen as Trump's trade 
war. The increased import taxes he has imposed on goods from China and Europe 
--- and the counter-tariffs other nations have applied to U.S. exports --- have 
hurt many American companies and paralyzed their plans for investment and 
expansion.

   In recent days, the Trump administration and Beijing have acted to 
de-escalate tensions before a new round of trade talks planned for October in 
Washington. Yet most analysts foresee no significant agreement emerging this 
fall in the conflict.


(KR)