Fed Issues Second Rate Cut Of 2019

Photo credit: Dan Smith via Wikimedia Commons

In a move that was widely expected, the Federal Reserve issued its second 0.25% interest rate of 2019 on Wednesday. Despite the cut, the Fed reassured investors that the U.S. economy is strong and the labor market remains solid.

“This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain,” the Fed said in a statement.

The rate cut comes after the New York Fed injected $53 billion in capital into the U.S. financial system Tuesday by buying U.S. Treasuries and other securities. The so-called “overnight repo operation” came in response to interest rates on overnight repurchase agreements spiking as high as 5% on Monday, more than double the Federal Reserve’s target range of between 2% and 2.25%.

Three of the 10 Fed members voted against the rate cut. Esther George of Kansas City, Eric Rosengren of Boston and James Bullard of St. Louis represented the most dissenting votes at ant Fed meeting since 2014.

The Federal Reserve has been under pressure all year from President Donald Trump to cut interest rates, raising concerns about the Fed’s independence.

“The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries,” Trump tweeted on Monday. “They can’t believe how lucky they are that Jay Powell & the Fed don’t have a clue.”

Global Slowdown

The Fed decision comes after global growth rates have been under pressure in recent quarters.

In July, the International Monetary Fund cut its 2019 global growth forecast for the second time this year from 3.3% to 3.2%. The Bureau of Economic Analysis reported second-quarter U.S. GDP growth of 2.1%, above consensus forecasts of 1.8% but down from 3.1% in the first quarter.

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