rate cut
rate cut

By Emel Akan

WASHINGTON—The Federal Reserve Oct. 30 cut its benchmark federal funds rate for the third time this year to sustain the U.S. economic expansion as downside risks for the global economy rise.

After its two-day policy meeting, the U.S. central bank decided to slash its target interest rate by 25 basis points to a range of 1.50 percent to 1.75 percent. The Fed, however, signaled that the current easing cycle could be over.

The statement of the Federal Open Market Committee (FOMC) reflected a robust labor market and moderate economic growth.

“The labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low,” the statement said. “Although household spending has been rising at a strong pace, business fixed investment and exports remain weak.”

The statement also said that officials will “continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

The federal funds rate refers to the interest rate that banks charge each other for overnight lending, but influences borrowing costs of all types of loans, including mortgages, auto loans, and student loans.

President Donald Trump has long been critical of the central bank. In recent months, he stepped up his pressure on the policymakers after the central banks around the world started to adopt deeper negative interest-rate policies.

In a recent tweet, Trump wrote the “Federal Reserve is derelict in its duties if it doesn’t lower the Rate and even, ideally, stimulate.”

“Take a look around the World at our competitors,” he continued. “Germany and others are actually GETTING PAID to borrow money. Fed was way too fast to raise, and way too slow to cut!”

The European Central Bank announced a new stimulus program last month, cutting its benchmark interest rate to a record low of minus 0.5 percent. It also restarted its 2.6 trillion euro ($2.90 trillion) quantitative easing program of bond buying.

In an interview, Beth Ann Bovino, the chief U.S. economist at Standard & Poor’s said that the United States can hold onto higher interest rates relative to its peers.

She said on Oct. 18, the U.S. “economy is holding up relatively well and the problems abroad and in manufacturing has not filtered into the domestic side of the equation.”

Hence, “it looks like the United States economy can withstand and still prosper” with high interest rates.

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