The U.S. Federal Reserve lowered its benchmark interest rate for the second time this year due to muted inflation pressures and the impact of global developments for the economic outlook, and confirmed its guidance from June and July that it would “act as appropriate to sustain the expansion.”
The U.S. central bank cut its target range for the federal funds rate by another 25 basis points to 1.75 – 2.0 percent and has now cut it by 50 points this year following a cut in July as global monetary policy continues to loosen to counter weaker business investment and exports as a consequence of the uncertainty unleashed by the trade conflict between the U.S. and China.
“This action supports the Committee’s view that sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain,” the FOMC, the Fed’s policy-making committee said.
Illustrating this pervasive uncertainty about the economic outlook, seven FOMC members voted in favor of the 25-point rate cut while one member, James Bullard of the St. Louis Fed, voted to cut the rate by 50 points while Esther George and Eric Rosengren voted to maintain the rate.
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In an update to its economic projections, the FOMC lowered its forecast for the federal funds rate to average 1.9 percent this year, down from its June projection of 2.4 percent, and forecast the rate would remain steady next year to average 1.9 percent, down from 2.1 percent forecast in June.
But in 2021 the Fed projects it will return to monetary tightening and sees the fed funds rate rising to 2.1 percent and then to 2.4 percent in 2022 as inflation slowly rises to the Fed’s 2.0 percent target in 2021 and 2022.
The forecast for economic growth in coming years is largely as projected in June, with economic growth seen easing to 2.0 percent in 2020, 1.9 percent in 2021 and 1.8 percent in 2022. This year growth is seen at 2.2 percent, up from June’s forecast of 2.1 percent.
To help implement its monetary policy stance, the FOMC also decided to lower the rate paid on required and excess reserve balances to 1.80 percent.
The Board of Governors of the Federal Reserve System released the following statement: